Survive Negative Equity

New research from Standard & Poor’s, the ratings agency, coincides with evidence that banks are aggressively seizing homes whose owners have slipped just a few hundred pounds behind on their mortgage payments. Economists believe house prices will fall by up to 35% from their peak by 2010. This compares with a drop of only 20% in the early 1990s.

Recent forecasts as to the number of people likely to fall into negative equity include:

The Bank of England: Calculations that the numbers caught in negative equity could soar from about half a million at present to 1.2 million by 2011

Standard & Poor’s Estimate that at the end of October 2008 335,000 homes were worth less than their mortgages. The figure represents a rise of 260,000 in four months. 

Capital Economics: The City consultancy, expects up to 2m properties will be in negative equity by 2010 — more than in the recession of the early 1990s.

Citigroup: Three million homeowners, or more than a fifth of households, could end up in the trap of negative equity, with mortgage debts larger than the value of their property, as house prices continue to plunge. Michael Saunders, of Citigroup, says that the Bank of England's estimates are too optimistic since they are based on a survey of households where homeowners are asked for details of their own debts, financial assets and property value. Mr Saunders points to previous Bank research which showed that individuals tend to overstate the value of their homes by up to 20 per cent, and understate debts by 10 to 15 per cent.

Adjusting for this bias, he calculates that a likely further drop of 15 per cent in house prices — on top of the 15 per cent slide over the past year — will leave between 2.5 and 3 million homeowners in negative equity. This would exceed the peak of 1.8 million, the number of people who were in this predicament in the early Nineties.

Any advance on this anyone?  It seems there is now almost a feeding frenzy of analysts predicting ever increasing levels of negative equity.