According to Zillow.com, nationwide, the number is 22%, up from 18% Q4 2008. In California, 32% percent of homes are worth less than what’s owed on them.

If we are thinking about the bank stress test, then unencumbered homes — those owned free and clear without any mortgages — are not relevant to the discussion. As we noted over the weekend, if you look at only the subset of homes with mortgages, the numbers are much worse.

Nationally, 22% of all homes are underwater, then consider the total of homes purchased with credit. Back out the mortgage-free homes, and we get 33% of all mortgaged homes are underwater. This is significant in terms of the results of the stress tests, and the banks ability to withstand further deterioration of their balance sheets. (For stress test purposes, homes without mortgages are not relevant)

Here’s Bloomberg:

“A growing number of U.S. homeowners owe more than their properties are worth after prices extended their two-year decline in the first quarter, Zillow.com said.

Almost 21.8 percent of all owners were underwater as of March 31, the Seattle-based real estate data service said in a report today. At the end of the fourth quarter, 17.6 percent of homeowners owed more than their original mortgage, while 14.3 percent had negative equity three months earlier.

Property values dropped 14 percent from a year earlier in the first quarter, reducing the median value of all U.S. single- family homes, condominiums and cooperatives to $182,378, Zillow said. The gain in underwater homeowners will lead to more bank repossessions, the company said.”

The recession cut home values by $2.4 trillion last year. In a separate survey of homeowner sentiment, 31 percent of homeowners said they would be at least “somewhat likely” to put their property up for sale in the next 12 months should they see signs of a recovery.

This implies that any housing “recovery” will be about stabilization and stopping sales/price erosion — not about regaining higher prices anytime soon . . .

>

Previously:
HomeOwner’s Equity: Less than 15% (May 3rd, 2009)

http://www.ritholtz.com/blog/2009/05/homeowners-equity-less-than-15/

Source:
Almost One-Quarter of U.S. Homeowners Underwater as Values Sink
Daniel Taub
Bloomberg, May 6 2009

http://www.bloomberg.com/apps/news?pid=20601087&sid=alObJoQNAz.E&

Category: Bailouts, Credit, Real Estate

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

47 Responses to “33% of Homeowners w/Mortgages Are Underwater”

  1. VennData says:

    If the mantra “buy and hold is dead, you must trade” were applied to housing…. then these people should all be able to buy and sell their houses back and forth to one another to get whole, right?

  2. Aeolus says:

    If the percentage of homeowners without a mortgage holds true nationally, this would mean that 48% of California homeowners with mortgages are underwater, with the likelihood of similar numbers in the other biggest bubble states – Florida, Arizona, and Nevada.

    That’s a pretty stunning number. In California, you would have over two million of the state’s 6.4 million homeowners with negative equity. With an average selling price of $220,000, that means there would be about 440 billion in underwater mortgages on the books of financial institutions just in California.

    Ruh-Roh

  3. I think its even worse… Consider that 38% of sales in California are FHA, 3.5% down..

    5% for agent fees add in a few more percent for other cost of sale items.. Any person buying with that low of a down is instantly underwater but wouldn’t be captued yet in the Zillow stats. They should be the least likely to sell but any further deterioration in the economy and/or home prices will stress this group at a much higher percentage. Generally speaking these people have the least reserves and are most exposed to the economic winds.

  4. snapshot says:

    http://blogs.wsj.com/economics/2009/05/06/all-real-estate-is-local/

    “All real estate is local”

    With falling wages, nothing sells in CA if not for the 30-50% drop. How can you reconcile 30-35% mortgage ratio without the housing prices going down? Who could buy a house? It will only get worse with the need for new tax revenues accelerating.

  5. from nearby thread:
    Mutant Capitalism Says: May 6th, 2009 at 3:53 am
    “….Center for Public Integrity releases results of its investigation into the housing crisis, which showed that investment banks, some of which were recipients of billions of taxpayer dollars through the federal bailout, made major investments in subprime lending.
    http://www.publicintegrity.org/investigations/economic_meltdown/articles/entry/1286/

    With credit default swaps, banks do better if borrowers fail.

    It was all about this scheme from the get go. . . Predatory Lending + Mortgage Servicing Fraud + Securities Fraud + Credit Default Swaps

    They gamed the sysem and rigged the bets. So how smart are they looking right now?”

  6. wally says:

    “nothing sells in CA if not for the 30-50% drop”

    But is it really a drop, or was it just bubbled up by that much three or four years ago?

  7. Bruce N Tennessee says:

    Retail sales in Europe dropped another .6% last month

    5/6/09 5 am…

    http://www.rttnews.com/CorpInfo/EconomicCalendar.aspx

    The China story certainly makes you think….it looks more and more like just one country is fighting those headwinds now…and I would like to be a fly on the wall of the central bank and see what the figures really are…

  8. Baille Beag says:

    “If we are thinking about the bank stress test, then unencumbered homes — those owned free and clear without any mortgages — are not relevant to the discussion”
    ——————————————————————————

    Maybe not “relevant” to the stress test discussion. But relevant to the economy.

    We just paid off our mortgage, and we’re using an equity line of credit to build a long wished-for addition to our little house, increasing the size by half. Our architect and contractor are really happy to be getting work right now.

  9. “But is it really a drop, or was it just bubbled up by that much three or four years ago?”

    I guess I don’t understand the difference.

    If you look at the bottom scatter chart (click to enlarge) on this page from September 2006 you will see the massive solid line @ 100% LTV:
    http://effectivedemand.blogspot.com/2008/06/ventura-county-april-2008-to-september.html

    Compare that to the chart for this last January:
    http://effectivedemand.blogspot.com/2009/05/ventura-county-january-2009-loan-to.html

    Note the scale on the left. Demand was effective because anyone could buy any home if they were willing to sign the papers. That is no longer the case today. You have significant demand today even in the face of 10%+ unemployment but you don’t have pricing power and there is a big difference. There are a lot of people who want homes in So Cal since the population is over 50% renters in places like Los Angeles County. But the number of people who want homes is a lot different than the number of people who can afford to buy. Lots of people want Ferraris, it doesn’t mean a single thing if they can’t pay for them. Desire != Effective Demand.

  10. Aeolus says:

    I think its even worse… Consider that 38% of sales in California are FHA, 3.5% down..

    5% for agent fees add in a few more percent for other cost of sale items.. Any person buying with that low of a down is instantly underwater but wouldn’t be captured yet in the Zillow stats. They should be the least likely to sell but any further deterioration in the economy and/or home prices will stress this group at a much higher percentage. Generally speaking these people have the least reserves and are most exposed to the economic winds.

    Oh, it’s worse. Many savvy observers expect another big leg down in California real estate prices after the temporary effects of the various moratoria wear off. Notices of default are at record levels, unemployment is getting worse, and there’s another round of layoffs coming from government and small businesses now that we’ve lost the 15% of disposable income that came from mortgage equity withdrawal. (Substantially higher in Cali than the 9% nationally.)

    The state budget crisis only makes matters worse.

  11. jc says:

    The underwater numbers are actually accelerating – increasing 4.2% in 1Q and 3.3% in 4Q. And this was during the foreclosure moritoria of various stripes

  12. Bruce N Tennessee says:

    http://www.wilx.com/news/headlines/44366452.html

    State Employee Layoffs and Furloughs Announced Today

    …Michiagan today, California tomorrow….

    Interesting times…

  13. Chubby Davis says:

    Just checked house.. still not underwater but creeping up.

  14. jc says:

    McCabe expects the rate of foreclosures in South Florida to skyrocket as toxic adjustable-rate mortgages reach their first-term change and more people become unemployed.

    There have been some early signs of improvement in some of the harder-hit markets in California, where there have been smaller year-over-year declines.

    “Slowing declines in select markets are a bright spot – or, at least, what passes for one, given current market conditions,” said Stan Humphries, Zillow vice president of data and analytics, in a news release.

    However, he added that we’re still many months away from the bottom and an even longer wait before there’s a meaningful recovery in home values.

    McCabe said those who think they can sell generally have greater equity and smaller mortgages. But, for those who bought their homes at the peak of pricing “there is no hope for these people, McCabe said. “When they go to sell, they will have to turn in the keys and go into foreclosure.”

  15. @Aeolus

    I agree 100%. And though the moratoriums are officially over I look at the trustee sale rolls every night and on a good day 15% of homes going up for auction don’t get postponed. Most days it is more like 8-10%. There are some large servicers that are effectively not foreclosing on anything but abandoned or non-owner occupied houses.

    For So. Cal. their is a distinct lack of inventory. Demand isn’t horrible considering the economy but inventory is getting pretty light. The weak borrowers get to stay in the houses not paying their mortgages and hoping for loan mods while the stronger borrowers pick over the small selection of foreclosed homes on the market. Since there isn’t significant pricing power by the new borrowers (they are basically currently overpaying anyways) they can’t move up the scale and buy the unrealistically priced homes that current owners would like to sell.

  16. snapshot says:

    http://www.nytimes.com/2009/05/06/business/economy/06panel.html?_r=1&partner=rss&emc=rss

    Mark E. Hoffer – Are you holding out any hope that this will help expose some of the shenanigans?

    “Inquiry Panel on the Economy Near a Vote” NYT

  17. dead hobo says:

    BR noted

    Nationally, 22% of all homes are underwater, then consider the total of homes purchased with credit. Back out the mortgage-free homes, and we get 33% of all mortgaged homes are underwater.

    reply:
    —————-
    So what. If you buy stocks today you can double down and be rolling in dough in a few weeks. The Obama Put will see to it. Failure is not an option, and the recovery of long term savings based on stock market losses is key. Even if the fox is allowed to guard the hen house. As long as everybody wins, then it’s OK. It’s not insider trading if Uncle Stupid stands behind it one way or another. The market won’t be allowed to crash again. The full faith and credit of the US Government is behind it. This is the Obama Put.

    Goldilocks is passing it out for free and has a piece for everybody.

  18. Bruce N Tennessee says:

    Chubby:

    OT, but here in East Tennessee we had a drought for 2007 and 2008..this year we have more rain than Noah…Scott County schools, here in the high country, were closed yesterday due to flooding…

    Amazing weather…and we expect 2 more inches today. Some of the mountain rivers are truly massively filled…the kayakers are “putting it on the line” the last few weeks…

  19. Bruce,

    to your link, did you any of the comments? ever wonder why these various States are laying off LEOs?

    to me, it’d be telling to see which ones are catching the axe..is it the ‘newly hired’? the ‘old guard’? those with ‘disciplinary problems’?

    pretext?: “In the early morning hours of September 9, 2001, a Maryland State Trooper made a routine traffic stop, pulling over a car headed north on I-95 and issuing a speeding ticket. Two days later, the driver of that car, Ziad Jarrah was one of four hijackers aboard United Airlines Flight 93 when it crashed in western Pennsylvania. The officer who issued the speeding ticket had no idea that Jarrah was on a CIA watch list. If he had, experts say, it is possible he might have prevented, or at least disrupted, the worst terrorist attack in history.
    About two years later, Maryland opened its Coordination and Analysis Center, an intelligence “fusion center” designed to pool and analyze information from federal, state, and local sources, in an effort to get vital information to the police officers who every day patrol the home front of the “war on terror.” Now in forty-two states plus the District of Columbia, fusion centers represent an important development in state-level homeland security initiatives. In some cases, police departments have even changed how they approach their work, emphasizing intelligence collection and sharing. Though experts applaud efforts to have better informed police officers, some civil libertarians worry about the collection and use of such information.
    http://www.cfr.org/publication/12689/
    result: “Many states and larger cities have created state and local fusion centers to share information and intelligence within their jurisdictions as well as with the federal government. The Department, through the Office of Intelligence and Analysis, provides personnel with operational and intelligence skills to the fusion centers. This support is tailored to the unique needs of the locality and serves to:

    help the classified and unclassified information flow,
    provide expertise,
    coordinate with local law enforcement and other agencies, and
    provide local awareness and access.
    As of February 2009, there were 58 fusion centers around the country. The Department has deployed 31 officers as of December 2008 and plans to have 70 professionals deployed by the end of 2009. The Department has provided more than $254 million from FY 2004-2007 to state and local governments to support the centers…”
    http://www.dhs.gov/xinfoshare/programs/gc_1156877184684.shtm

  20. jc says:

    I assume furloughs don’t count in unemployment computation. MI laid off 300 but the furloughs (6 per worker the next six months) works out to about 1400-1500 jobs, or twice that on an annualized basis. MI has about 60K workers. Funny a lot of them are UAW, thats a strange fit isn’t it?

    The furlough days for employees would cut across most of state government, Emerson said. He said the administration is calculating how to spread out the days off so essential services are not disrupted. That’s problematic for 17,000 members of UAW Local 6000 — the largest state employee union — whose contract allows up to 20 furlough days, but which must be taken consecutively.

  21. jc says:

    BR – question – do you know if public/private furloughs are counted in unemployment? TIA

  22. snapshot,

    it’s like anything else: who gets appointed, what powers are they given, etc.

    and, surprisingly, or not, that ‘Commission’ hasn’t received much in the way of a media build-up..

    those types of things don’t have a sterling record, even when they come back with the *Truth, see: Grace Commission, it wasn’t acted on..
    http://www.uhuh.com/taxstuff/gracecom.htm

    LSS: yes, it could work~

  23. jc says:

    I don’t know how Zillow computes their underwater homes but I have noticed that their Zestimates seem to be generous. Realquest, which claims more accurate numbers has always been lower than Zillow at every place I’ve checked, sometimes slight – sometimes significant.

    Realquest is interesting, they list preforeclosures and bank owned homes and the magnitude some of these places are underwater is astounding. They must have floated second mortgages and HELOCs concurrent on some of them.

    Click on buyers on realquest and then sort equity low to high

  24. snapshot says:

    MEH – Subpoenas – You gotta love subpoenas. We shall see. If nothing else it will be a friggin circus for a few years. Lots to talk about.

  25. Mannwich says:

    Ho hum. And back to your regularly scheduled market rally.

  26. Mannwich says:

    @Hoffer: I agree. There’s no way anyone can tell me that nobody knew this would eventually blow up. They knew and just didn’t care. Why should they when they could pocket millions of dollars and then eventually get bailed out?

  27. snapshot,

    no doubt, x2.

    though, distracted from : “The reality is we are fast approaching a genuine surveillance society in the United States – a dark future where our every move, our every transaction, our every communication is recorded, compiled, and stored away, ready to be examined and used against us by the authorities whenever they want. The ACLU has created this Surveillance Clock to symbolize just how close we are to a “midnight” of a genuine surveillance society.” this, certainly, as well.
    http://www.aclu.com/privacy/spying/surveillancesocietyclock2.html
    –Persistent Surveillance a Key Topic at DHS Conference
    http://terrorism.about.com/b/2008/06/05/persistent-surveillance-a-key-topic-at-dhs-conference.htm

    these panopticon technologies have been one of the few true ‘boomtowns’ in the 21stC.

  28. rob says:

    Question: At what point would the FDIC become insolvent? I know they have a limited amount of funds generated from fees, but what is the backing after that pot of money goes away?

  29. larster says:

    CA is set up for a horrible cycle as ALT A’s are adjusted. Once the higher priced homes begin to hit the market in greater numbers, the floodgates will open. The carrying costs (prop taxes, upkeep, etc.) of a house are such that most smart people will eventually bite the bullet. With the state budget problems unresolved, it will be a mess. We can only hope that the feds let CA deal with their problem .

  30. Mannwich says:

    @rob: The “backing” for the FDIC and everything else right now and for the foreseeable future until it no longer works is the print more greenbacks.

  31. this is, on one hand, incredibly telling, and valuable: “…Grede is new to the trustee field. He won appointment by a federal bankruptcy judge in August 2007 after being nominated by a Sentinel creditors committee, whose members knew him from his 30-year career as a commodities executive. He started out in the Chicago Board of Trade’s surveillance department, conducting spot audits of traders.

    A lawyer by education, he brings to his new job a digger’s mentality and a detective’s suspicious mind. His work on the Sentinel case is emblematic of what is core to a trustee’s job: to get to the bottom of a company’s collapse in order to recover assets for creditors.

    As he delved into Sentinel’s demise, Grede says the case began to look like a parable of the current economic crisis. Grede laid out that case in a lawsuit filed in October 2007 in Chicago’s U.S. bankruptcy court against Sentinel’s chief trader, Charles Mosley, and its controlling shareholders, CEO Eric Bloom and his father, Philip Bloom, the company’s founder.

    ‘Phony’ Returns

    In that suit, he alleges that the company defrauded and misled clients with “phony” returns while assuring those customers their cash was being parked in safe, liquid commercial paper or U.S. Treasuries. Grede says Sentinel was actually making huge bets on unorthodox 30-year instruments that turned out to be another example of financial engineering gone awry — and hiding those bets with misleading accounting.

    Grede says he began to understand Sentinel’s fondness for those instruments as he probed the machinations of Mosley, who had an alleged fondness for boozy lap dances, limousine rides and, according to additional lawsuits filed by Grede against outside brokers, bribes…”
    http://www.bloomberg.com/apps/news?pid=20601109&sid=aOFZVf8Tr3D0&refer=home

    on the other hand, it is a complete distraction from:
    “”Banking was conceived in iniquity and was born in sin.
    The Bankers own the earth. Take it away from them,
    but leave them the power to create deposits,
    and with the flick of the pen they will
    create enough deposits to buy it back again.
    However, take it away from them, and
    all the great fortunes like mine
    will disappear and they ought to disappear, for
    this would be a happier and better world to live in.
    But, if you wish to remain the slaves of Bankers
    and pay the cost of your own slavery,
    let them continue to create deposits.”
    –Sir Josiah Stamp
    (1880-1941) President of the Bank of England in the 1920′s, the second richest man in Britain
    Source: Speaking at the University of Texas in 1927
    http://quotes.liberty-tree.ca/quote_blog/Josiah.Stamp.Quote.69BB

  32. The Curmudgeon says:

    The FDIC is insolvent, just like the banks it insures. The only question is when will it get so bad until it can no longer be ignored.

    All these private and public insolvencies are being securitized by the full faith and credit of the United States Government, i.e., the dollar, i.e., the taxpayers, whose efforts the dollar purportedly represents.

    My guess for the next crisis: fall/winter 2009/10. The swine flu will be back then to again instill fear, if irrationally, and the green shoots that were going to solve the banking insolvency will have withered and died. Cheers.

  33. [...] Ritholtz takes the numbers a step further in his (more accurate) post today – 33% of Homeowners w/Mortgages are Underwater: According to Zillow.com, nationwide, the number is 22%, up from 18% Q4 2008. In California, 32% [...]

  34. Marie Antoinette says:

    Crisis averted! Here is the solution to all those underwater mortgages.

    http://thornburgisdead.blogspot.com/2009/05/mr-geithner-ill-take-that-480-billion.html

  35. Onlooker from Troy says:

    As the foreclosures grow and more people up the income scale are pulled into it, more and more will choose to walk away vs. staying. It’s easy to make the case. When so many are doing it the stigma drops. They just figure they’re screwing the banks so who cares. And why not, the taxpayer (and thus them) are backing it all so they may as well get some benefit.

    Then they’ll go rent. A bad credit score will become more the norm and landlords need renters, so they can’t deny everybody with a foreclosure on their record.

    The wave will grow.

  36. Marie Antoinette says:

    Onlooker,

    You are mostly correct, but given a reason to stay (and a reasonable mod where needed) they will stretch the bejeesus to stay put.

    Why does no one see this?

  37. Hoffer
    Here is an interesting anecdotal
    My wife, Luscious Louella Longhorn, had to call the local Fed-Ex office to return a package. Using her cell phone, at her place of employment she place the call, the other end asked her if she was at address X, which she was.
    Address X is in no way associated with her cell phone.
    Kinda weird.
    And this is a public company no less. (Fed-Ex)

  38. Thanks Mark E
    Am just very surprised this technology is in the hands of a private business like this.
    One of LLL’s friends got a telemarketing call for magazines on her cell phone,
    the salesman? then asked her if she was at DFW airport, which she was.
    So now telemarketers can pinpoint your location when they call you.
    So very odd.

  39. John Lorson says:

    Millions of homeowners and investors who can make their payments owe more than their properties are worth. The rebound of the economy is contingent on the recovery of the housing market. Combining the reducing wage structure with the strictest underwriting standards ever placed on potential borrowers, the price of real estate will not be able to increase to the amount owed by homeowners who purchased or refinanced their homes from 2003 through 2008 for 18 or more years. Home values inflated by 100% over a 3 year period in many markets. Under normal conditions, home price would have increased around 6%. The created home values (100% vs. 6%) will have to be removed from current home values. Government Agencies, Wall Street firms and Lenders defrauded homeowners and investors for short term profit. Every FNMA/FHLMC appraisal defines market value as the price not affected by undue stimulus and the price represents the normal consideration for the property sold unaffected by special or creative financing. Special or creative financing was provided by these entities and placed an undue stimulus on real estate sales. These entities knew the consequences of their loan products, had build in controls to protect their companies and the consumer, and yet ignored the consequences of their own policies for short term profit and excessive bonuses. We have experienced the equivalent of financial terrorism on Mom and Dad America and nothing is being done to protect and correct for the situation. An answer to correct for this fraud would be an interest free period until such time as the excess inflated value is removed from the loan balance. The People’s Fix.

  40. Foghorn,

    this: http://www.targetmarketingmag.com/# will give a starting point..note some of players in the game, and:
    “EPIC Urges Greater Accountability for Network Surveillance
    Today, EPIC asked Senator Patrick Leahy to investigate the Department of Justice’s failure to make public statistics detailing federal use of “pen registers” and “trap and trace” devices, which record “non-content” information about telephone calls, email and web traffic. In a letter to the Chairman of the Senate Judiciary Committee, EPIC observed that the Attorney General is required to provide to Congress detailed statistics concerning the use of these techniques. Yet, “the DOJ does not publicly disclose pen register reports as a matter of course.” EPIC also raised questions regarding the agency’s compliance with reporting requirements for the period 2004-2008. The lack of public accountability for these network monitoring techniques contrasts with the U.S. Courts’ routine public reporting of federal wiretaps, EPIC said. The Courts released the most recent wiretap report on April 27, 2009. For more information, see EPIC’s Wiretapping page. (Apr. 29)”
    http://epic.org/

    Data, once gathers, travels..LSS: Americans, in the 21stC, were Stripmined, wholesale, of just about any and all ‘personal’ info..

  41. [...] Barry Rithholtz notes: The recession cut home values by $2.4 trillion last year. In a separate survey of homeowner sentiment, 31 percent of homeowners said they would be at least “somewhat likely” to put their property up for sale in the next 12 months should they see signs of a recovery. [...]

  42. james hogan says:

    Approximately 36% of the public live in some sort of housing that they do not own. Another 1/3 of the public lives in houses that they own outright. That leaves approximately 31% of the public that have mortgages. Of those, 1/3 of them owe more on their homes than they are worth, which figures out to about 10-11% of homeowners.

    I have a question: What percentage of those homeowners who either own their houses outright or who have a mortgage also have some sort of second mortgage or HLOC (homeowner line of credit) loan on their house? Does anyone know?

  43. james hogan says:

    ” Of those, 1/3 of them owe more on their homes than they are worth, which figures out to about 10-11% of homeowners.”

    Yikes! A math error. That should read “10-11% ” of the public, not homeowners. Apologies.

  44. Greg0658 says:

    snap and Hof – “we are fast approaching a genuine surveillance society in the United States”

    imo the 21st and hopefully 22nd century world needs it .. BUT with oversight … and trusted by the public

    provided we get to the equilibrium of acceptable behavior of all interests (if ever*) .. this world of people has invented devices that are much to potent

    queer (around for centuries) is becoming ok / child rape should never be ok / wife hopping should be discouraged
    loafin’ should be frowned upon / stealing should be unneeded / murder for profit should never be ok
    speech should be free / blackball’g someone because of ___ should be ok .. but the world should have a spot to flock

    what pinch points .. sex / livelihood / speech .. did I miss?

    children should be safe on the streets / adults should be safe on the streets … not these days

    * religious fundamentalist wish the world to stay true to 1st century values for the salt to hold its flavor .. I respectfully disagree to a point .. and they have forwarned you of these days

    (ps- totally twilight zoned now .. the internet went down while trying to make this post an hour ago)
    (pss – Comcast is to big to fail/fight) (pss – anyone know of emergency dialup ala carte ?)