Report: Half of homeowners under 40 are underwater

A recent report found that younger homeowners are more likely to be affected by negative equity as they have had less time to build up the value of their homes before the market fell.

The most recent report from Zillow, an online real estate database, found that even though the housing market is slowly improving, younger borrowers are more likely to find themselves owing more than their home is worth.

Nearly half of borrowers under the age of 40 are finding themselves submerged, even though overall levels of negative equity improved in the second quarter of the year compared with the first quarter. This happened as home values continue to rise.

According to a blog post on The New York Times website, younger borrowers are more likely to be affected by negative equity because they have had less time to build up their home value before the housing bubble burst. However, Stan Humphries, chief economist at Zillow, countered that this age group is also more likely to find themselves in "shallow" water in comparison to older borrowers. Also, younger homeowners are less likely to be delinquent on payments, he said.

"Overall, the second-quarter report is positive," Humphries told the news source. "The housing market is healing, albeit slowly."

With prospective borrowers of all ages at risk for encountering difficulties with paying off their mortgage, lenders should ensure that they create an amortization schedule for loans. This way, a proper payment plan can be made that is best suited to each individual borrower.

Humphries went on to explain that the disproportionate impact on younger borrowers could have a positive impact on home values, by creating tight inventory of homes for sale. Those trapped by negative equity might be reluctant to sell, even though their homes are the most attractive to prospective buyers. But, when they do sell, prices are higher, which pushes value up and will gradually aid the market in its recovery.