The Illustrated Brown Bust: negative equity

Estimated number of households in negative equity, 2003-10

If you’re a homeowner, turn away now. CoffeeHousers may remember recent reports of 1.2 million houses at risk of negative equity  – well, that may just be the start of a negative equity tsunami. This Citi graph, the latest in our occasional series, shows what would happen if prices do fall 30% as is widely expected. The left-hand scale is million, not per cent. It presumes 0.5m in negative equity now, rising above 3m – or one in four British households. As Michael Saunders from Citi says in his note: “These calculations are uncertain. But the key point is that, with house prices plunging, the numbers of households in negative equity will probably match or exceed the early 1990s peak of 1.8m. In turn such negative equity is likely to exert a lasting drag on spending as households save more”.