"Without enough equity, these costs will instead have to come out of a homeowner's pocket, leaving many still stuck," said Zillow's chief economist, Stan Humphries. "Looking at the effective negative equity rate could explain why recent, healthy declines in the number of underwater borrowers haven't yet translated into more homes for sale. The only cure is patience, as rising home values continue to build equity to the point where more homeowners can realistically sell," he said. Zillow expects only slight improvement over the next 12 months. "Among the 30 largest metro areas covered by Zillow, those with the highest effective negative equity rate, including homeowners with 20% equity or less, include Las Vegas (71.5%); Atlanta (64.1%); and Riverside, Calif. (59.7%)," Zillow says. Homeowners who do not have the cash to make up a shortfall to buy a new home are stuck. But what about those who do have the resources? Should they wait until their equity grows, or should they draw on other money to move now? It's a dilemma, because the next home may well be growing more expensive as you wait for the equity to grow in the current home, so the gap between sales proceeds on the current home and purchase price for the next one may not close very fast. Negative equity will shrink eventually, though, because your mortgage payments will gradually reduce your debt.
For many people, other factors will come to bear. To move for a better job, it may well pay to dig into savings. But it may not pay to invade a college or retirement account simply to trade up to a bigger or more expensive home you really don't need.