The housing-market downturn, now stretching into its fifth year, has added to this peculiar vocabulary. One term that seems to get under people's skin is underwater, which refers to borrowers who owe more on their mortgages than their houses are worth.
About 23 percent of U.S. mortgages fall into this category. If you sit out the downturn, it won't matter. I spent 1988 to 1994 owing more than my house was probably worth, until my next-door neighbor sold his identical twin home. Thanks to the higher comparable that sale provided, I refinanced to a much lower interest rate, reducing my monthly payments substantially.
When you can't pay the mortgage, or need to sell because of a new job elsewhere, or want to refinance, owing more than the value of your house becomes a problem.
I won't use underwater to refer to this situation again. I will use the alternative phrase negative equity, unless you object. After all, if you owe less than your house is worth, you have equity, correct?
Shadow inventory appears toward the top of today's current real estate lexicon, and describes two phenomena.
One refers to houses people have been wanting to sell but are keeping off the market until conditions (prices and/or sale times) improve.
The federal tax credit that expired April 30, 2010, managed to reduce U.S. regional inventories from 16 months' worth to nine, because first-time buyers flooded into the market. Economists feared that huge numbers of homeowners would see that as a sign to put their houses up for sale, thus increasing inventories to even higher levels.
It didn't happen - a good thing because, based on the fall-off in sales after the tax credit expired, inventories would have risen to a point where recovery would be delayed well past the 2012 or 2013 target date economists have been suggesting lately.
