Homeowner Characteristics Associated with the Occurrence of Negative Home Equity

Written By: Leslie E. Green, and Narang Park

Negative home equity is due to declines in home values, largely driven by economic factors, and increases in mortgage debt, a decision made by individuals. Yet, empirical research assessing the individual’s role in the occurrence of negative home equity is limited. This study used the 2018 National Financial Capability Study to explore the association between financial literacy, savings, and debt at the individual level on the occurrence of negative home equity. The findings revealed that objective financial knowledge and financial security were negatively associated with the occurrence of negative home equity, while having a home equity loan, using a payday loan, having medical debt, and exceeding credit card limits were positively associated with the occurrence of negative home equity.