As Borrowers Underestimate Equity, Their Confidence Turns to Confusion

Fannie Mae has been doing her research and has found as the prices of real estate continue to rise, borowers aren't realizing how much equity they actually have. Fannie Mae has reported that the uninformed homeowners are less likely to refinance mortgages, apply for home equity loans, or even buy new homes.

Since home values have risen since 2012, just as reductions in prices submerged some homeowners underwater, the rising home values would bring underwater homes afloat on top of raising a lot of home equity. A lot of homeowners are unware of this, seeing they now have the favor.

Every month Fannie Mae conducts new interviews with homeowners about where they stand on renting, buying, planning to buy and sell. 

What they have found during these interivews is suprising. The number of homeowners who believed they were underwater hasn't changed much, but the fact that home prices are rising has led to homes floating again without homeowners even knowing it. 

Fannie Mae asked homeowners to compare their total mortgage debt to the value of their homes in 2014, 23% of homeowners thought they were underwater. The next year in 2015 showed that the belief of being underwater bumped to 24%. In 2015, the true number of underwater homes was actually 7%!

The whole idea is to not misinform homeowners and lead them to take on crippling debt, but to inform them enough to make wise, and sound financial decisions. If you can remove the gap between perceived and actual home equity, the confidence bar would skyrocket. In turn, this would lead to a stronger market.

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