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Equity problems still linger for some homeowners

When the housing market's downturn first hit, millions of homeowners nationwide saw their properties lose potentially significant portions of the value they previously held. That, in turn, created a slew of problems for many Americans, some of which still linger to this day.

In fact, millions of people still owe more on their mortgages than their properties are actually worth, making a number of potential transactions they may want to make – such as a move or refinance – difficult or perhaps even impossible to complete. These underwater homeowners are therefore stuck with few options, though some efforts have been made on the part of government agencies and even financial institutions to lessen the burden these people face. And while underwater mortgages are less of a problem now than they were even a few years ago, the fact is that many are still affected by this issue.

A less-talked-about issue
However, there are many other homeowners who continue to struggle as a result of the market's downturn, even if they're no longer underwater on their home loans. These people may have gotten back into positive equity in the past few years, but the fact is that experts generally wouldn't consider them to be in a good position even now. These homeowners continue to deal with what is known as "marginal equity," which, while positive, is seen as being quite problematic overall.

That's because their homes are still worth 20 percent more than what they owe on their mortgages, or less. This means that things like moving are more feasible, but still not financially advantageous unless they're downsizing their homes. Consequently, that may lead to millions more homeowners feeling as though they need to keep living in their current properties, even if they don't necessarily want to.

What does that mean for the market?
Consequently, these twin issues can lead to problems for the broader housing sector, because they may prevent millions from selling their homes. That, in turn, helps contribute to the still-constricted inventory of properties for sale, which leads hopeful buyers to face increased competition. On the other hand, the bidding wars that can arise from these issues drive up property values in many parts of the country, which further helps to pull people out of marginal and negative equity.

However, it's worth noting that there are still some markets where homeowners were disproportionately affected by the initial downturn – mostly in the Southeastern and Southwestern U.S. – and where market recovery still hasn't been apparent because of how hard they were hit by the downturn in the first place. Interestingly, though, people looking to buy inexpensive homes while rates are still low may do well to shop in those areas as a means of keeping costs down, especially if they're flexible when it comes to where they want to live next. That could allow them to save potentially tens of thousands of dollars.

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