ATLANTA -- Marquita Shealey is having a tough time after the Lithonia, Ga., house she bought lost more than half its value in two years.

The loss put the 29-year-old first-time buyer in the same position as about 31 percent of U.S. homeowners, according to California real estate and data firm Zillow: She is upside down, or owes more on the mortgage than the worth of the home.

For younger buyers, especially those trying to relocate or just sell a home, it is a financial hardship that ripples through the economy, cutting into sales at department stores, stifling hiring and pulling down other home values.

In Shealey's case, she can't sell and take a loss and has also suffered some other financial hits, such as expensive home repairs and a split with the man with whom she bought the house. So she is stuck in a home that suppresses her ability to flex with new financial constraints. She cut back spending and is considering pulling her daughter out of private school.

"I thought once I closed, everything would be smooth sailing," Shealey said. "Now everything is on me."

Zillow economist Stan Humphries said younger buyers typically paid low down payments, have little equity in the home and are more likely to have purchased in the past ten years as home prices hit a peak. Home values dropped on average about 35 percent here since 2006.


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Younger buyers typically are at the beginning of their careers, earn less than older counterparts and have amassed fewer assets that could help them get through tough times.

Humphries noted that being underwater on a loan can prohibit a young worker from moving to a new location for a better-paying job, because they can't afford to sell at a loss.

If owners can't sell, it creates a secondary effect up and down the economic ladder. There are fewer available homes on the market for willing buyers. Being underwater also retards the ability of homeowners to sell and move up, a traditional strong sector of the housing market.

"It does gum up the inner workings of the housing market," Humphries said.

The frustration of being stuck in a house encourages homeowners to default to get out of the payment, causing more foreclosures in the housing market and depressing everyone's home values.

Georgia real estate investor Bob Massey said he has friends with one child who want to sell their small house and move to a more spacious home, but they cannot because they are underwater. The couple is holding off having a second child.

Another friend in the military moved here from Maryland but cannot sell his underwater home there. If they are able to rent it, the income will still be less than the mortgage payment and the couple will have to make up the difference.

"Here is a young couple spending an extra $400 or $500 a month and trying to keep his credit clean because it affects his job," Massey said.

"If he did a short sale, it would affect his credit and he can't get loan for another three or three years," he said. "It really makes for difficult situations for families."

Humphries said despite the difficulties, about 92 percent of homeowners are staying current on their payments. Being underwater does not mean that those homeowners will soon be among the foreclosed-upon.

And being underwater may not be a big deal to older home-buyers. They typically bought years ago when prices were lower and have built up equity, which lowers what they owe.

If older owners don't have a disaster such as a job loss and had no plans to move, they are less affected because they can wait for prices to come back, Humphries said.

Zillow got its mortgage data by giving estimated home values to credit information company TransUnion, which matched the estimated values against known mortgage balances at those addresses.