Resets of Lines of Credit Could Spell Disaster for Real Estate Market
The real estate issues may seem to be alleviating somewhat, but RealtyTrac has found some issues that homeowners may be facing in the next few years concerning their home equity lines of credit. According to their research, thousands of homeowners in Nevada may find it every difficult to pay off these lines of credit when their interest rates are reset to higher rates and terms between 2015 and 2018. This is especially true for those homeowners who have loans on homes that are underwater. This can cause a huge real estate issue, as people look to sell off their homes to get out from under these lines of credit or are forced into a foreclosure or short sale situation.
What will happen when home equity lines go through the reset period?
Serious Issue With Lines of Credit
California research firm RealtyTrac looked beyond primary mortgages and found thousands of Nevadans with home equity lines of credit that could soon be harder to pay off. Nationally, Nevada has the highest share of these loans in danger, with 84 percent of them being substantially underwater, compared to a 56 percent rate nationally. Las Vegas ranked as the number one city in Nevada at 89 percent, which spells bad news for some homeowners, as they will be struggling to make payments and keep their homes.
An underwater loan means that they owe more on the home than it is worth or than it can be sold for. During the housing boom, many of the homes sold for much more than they were worth and loans were easier to get at lower interest rates, which led many people to buying homes that they truly could not afford or taking out home equity lines of credit that they are not going to be able to afford.
RealtyTrac Vice President, Daren Blomquist said, “The Las Vegas metro area was hard-hit by the housing crisis and while rebounding home prices have helped many, the homeowners who are still underwater continue to be at high risk for default. Adding in the payment shock of a resetting (home equity line of credit) could push them over the edge. For many strapped homeowners, it could be the last straw, so we will be watching to see if there is a ripple effect in the housing market.”
May See Big Effect On Housing Market
Of the over 35,000 lines of credit in Las Vegas that will be resetting terms in the text three years, a little over 31,000 of them are on loans that are seriously underwater. This means that payments could go up by an average of $135, which could be a huge hit for some homeowners. The largest number of resets will be in 2016, so it will definitely be something to watch for as homeowners begin to see the changes in their payments due.
While refinancing is an issue for some homeowners, if they are in a negative equity situation, there is not normally a refinancing option. This could lead to more foreclosures or short sales, which could cause ripples along the entire real estate market. The key is to remain calm and wait to see if and how this will affect the real estate market as a whole.