The number of homes in Grand Junction with negative equity — a loan balance that is greater than the value of the property — has reached 19.2 percent in 2008. That’s a jump from 9.7 percent in 2007 and is well above the percentages recorded earlier this decade, according to real estate charting source

“It paints a picture that we didn’t see two years ago,” said Bob Reece, president of Advanced Title Technology. “Two years ago, almost nobody had negative equity. Usually this is a precursor to some people defaulting. It’s almost the same as what’s called ‘upside down’ in car financing.

Cars depreciate. Houses, generally, do not.”

He said the prevalent reason for increasing negative equity locally is the number of loans made during the past three years in which borrowers got 100-percent loans — meaning they were not required to make down payments — and then some, up to 120 percent of the amounts they needed. They were counting on the values of their homes increasing.

“Historically, that’s been a safe bet here,” Reece said. “Those people that are refinancing and trying to fix their rates, now is the time to do it.”

Reece said low interest rates are good for both new financing and refinancing.

“Right now, lenders are being bombarded by applications to refinance,” he said. “The people that are smart are trying to take advantage of cheap money for the long-term. It’s a good strategy, but many of those applications are going to fall out because they can’t qualify — either their current loan value is too high or they have bad credit.”

Nonetheless, Reece advises people contact their local lenders for options and try to get a 15- or 20-year fixed rate mortgage to reduce payments.

“It’s a combination of things,” Jim Smith, branch manager for Reliance Mortgage, 605 Grand Ave., said of the negative equity spike. “We were doing 100 percent financing through loans. We were in a growing economy. People felt fairly confident the values of their home would go up.”

The slowing economy, decreasing demand for housing and decreasing home values have been some reasons for the value decrease, he said.

Anyone who financed a home at 100 percent in Grand Junction has seen the value decrease between 3 percent and 5 percent, Smith said, referring to information he has received from appraiser updates.

The Multiple Listing Service (MLS) real estate database recently reported the median home price in Grand Junction at $234,900 for the third quarter of 2008, down from $243,000 in the second quarter of the year.

The MLS database also shows the average housing price in the third quarter at $253,266, down from the second quarter figure of $258,834. Reece said the average price this quarter so far is $246,864.

Smith said he has noticed larger cities with bigger problems. For example, a home in Denver purchased with a $205,000 loan might now be worth $140,000. He said negative equity is even greater in areas such as Phoenix and Las Vegas.

“There are a lot of places down 40 to 50 percent,” Smith said. “They expect another 20 percent decline in some markets.”

He referred to Grand Junction’s recent rating as among the top 10 hottest buyer’s markets, as measured by

“That should help people in mortgages to come back and maybe even gain some equity.”

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