The experts seem to think that twice as many borrowers will have negative equity in 2011 compared to 2009. Frankly, that's not too far-fetched of an estimate considering that there are still a large number of mortgages that has not reset yet. Option ARMs and Alternative A-paper (Alt-A) mortgages will be resetting in huge quantities in 2010 & 2011. We have seem signs of improvement price-wise thanks to government manipulation. The First-Time Home Buyer Tax Credit caused a buying frenzy this past summer and the frenzy can be expect to continue until the credit expires in the Spring of 2010, but do not be fooled by the hype. The credit has only created a pseudo recovery. The economy is still unhealthy. Countless mortgages are out there that are ripe to reset and unemployment is still rising in many local markets. It is unlikely prices will continue to rise. I expect to see another dip before a full recovery.

Nevertheless, if home values start to go up or go down, that has little effect on borrowers who owe way more than the fair market value of their home and who cannot make payments. Prices change gradually and are cyclical. It can take 7 to 10 years to go through a full cycle. On the other hand, the foreclosure cycle is rapid. In most cases, it takes less than a year to reach completion. So, obviously there isn't even a distinct possibility that borrowers in default could delay or ride-out foreclosure until prices pick back up.

Are you wondering why prices fall to begin with and what factors intensify the fall? The catalyst is over supply and under demand. Value dropping accelerants include:

(1) Foreclosures in your neighborhood. The quickest way to end up underwater is to live in a neighborhood that's plagued by foreclosures. As homes go into foreclosure, they create a domino effect, lowering home values throughout a neighborhood in a cascade beyond homeowners' control.

(2) Homes lingering on the market. When homes sit on the market for three or more months without receiving an offer, that may mean buyers and sellers cannot agree on a price. Thereby, homes are unlikely to sell unless the seller lowers their asking price.

(3) Increasing unemployment. Buyers are less likely to purchase a home if they are fearful of losing their job, so sellers are forced to reduce their asking price.

(4) Homes in disrepair. As the condition of homes in your neighborhood worsens, home values are likely to drop because the neighborhood looks like a less desirable place to live. A pretty house in an ugly neighborhood is not as attractive as an ugly house in a pretty neighborhood.

Melvin Campbell
Equinox Properties, LLC
Company Website: http://equinoxpropertiesllc.com
My Blog: http://melvincampbell.wordpress.com/