Sometimes drag buys a game on Steam at full price, and then a week later, the game goes on sale. Drag thinks “damn it, drag should have waited”. But drag’s never that upset, because drag wouldn’t have bought the game if it weren’t worth the price. Drag failed to save some money, but drag still values the game more than that money, so it’s not a big issue.
The concept of negative equity was recently explained to drag, and it sounds like the housing equivalent of that. It happens when the price of housing crashes, but you already have an expensive mortgage out on the house. You still have to pay money worth more than the value of the house. Therefore, your equity, or equivalent share of ownership, is effectively less than zero.
The politician drag was talking to said negative equity is a big problem and it’s why we can’t just crash the housing market to solve all our cost of living problems. But drag doesn’t understand. If you take out a mortgage, you should be able to afford it with your income, and the house should be worth more to you than its market value. Negative equity sounds like a huge bummer, but that politician was talking like it was something life ruining.
Why’s negative equity so bad?
It’s bad because it’s dangerous. If something happens and you can’t pay the mortgage any more, then the idea of a mortgage is that you can always just sell the house to settle the debt instead.
If you get into negative equity though, then even if you sell the house you could owe a huge amount of money and have no way to do anything about it. An under-control debt could turn into a crippling debt overnight.
I suspect the real reason politicians care, though, is because that’s the one scenario in which the lender might lose money. They prefer their customers being able to pay their debts (theoretically)
No, the politician drag was speaking to is running on an anti-bank platform.
Based on your answer, it seems like negative equity is dangerous for a middle class worker who gets bumped down to the lower class, but a housing market collapse still benefits way more people who were less well off before the collapse. Perhaps the legislation to cause housing collapse could be bundled with a form of government insurance against negative equity…