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Increase in Home Prices Has Positive Effect on the Economy

The net equity recorded for residential real estate rose by almost $2.2 trillion last year. Considering the economy of the country, these values are quite impressive, especially when the past figures are analyzed in details. For the average home owners, the numbers are really good, especially when you consider that millions of them were suffering from underwater mortgages and another million owned more in debt than the total worth of their home.

A net equity can be defined as the difference between a home’s value and the amount a borrower pays on the mortgage.  In an ideal situation, the home’s value should be bigger than the other factor. As an example, if a house is valued at $400,000 and the mortgage amount is $200,000, then the net equity can be calculated as $200,000 or 50% of the residential real estate. Ever since the housing bubble took place, both figures fell sharply, leading to a collapse of the housing market. As such, there were so many homeowners that had negative values of equity, which is actually another term for the so common phrase underwater mortgage.

Since the people owed such huge amounts in debts, they chose not to pay their mortgages which paved way for foreclosures. All these unfortunate people were put in a difficult situation where they could not move anywhere, borrow any loan or refinance their existing mortgages.

Considering the recent stats, home prices have risen rapidly. This is good for all the troubled homeowners because it provides them with a chance to have positive equity values once again. When this happens, money is released which can be used for other major expenses such as home construction, home improvement and so on. Analyzing the entire situation from a broader perspective clearly implies that the whole economy of the country will be significantly affected.

According to recent stats, as home prices rose by nearly 14%, single family homes enjoyed their largest ever gain values that have ever been recorded in the last seven years.

Despite the positive figures, there are still plenty of homeowners who are suffering from underwater mortgages. The good thing is that the number is rapidly dropping. At the start of 2013, this number was 23.8% and towards the end it had decreased to 21%.

As the figures continue to improve, the economy of the country will definitely be rewarded.


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