Deep Underwater

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Here’s a stat to wake you up this morning:  23% of all mortgage borrowers in the US are underwater:

“The proportion of U.S. homeowners who owe more on their mortgages than the properties are worth has swelled to about 23%, threatening prospects for a sustained housing recovery.

Nearly 10.7 million households had negative equity in their homes in the third quarter, according to First American CoreLogic, a real-estate information company based in Santa Ana, Calif.

These so-called underwater mortgages pose a roadblock to a housing recovery because the properties are more likely to fall into bank foreclosure and get dumped into an already saturated market. Economists from J.P. Morgan Chase & Co. said Monday they didn’t expect U.S. home prices to hit bottom until early 2011, citing the prospect of oversupply.”

There are 5.3 million U.S. households with mortgages at least 20% higher than the home’s value. And it gets worse, depending upon the vintage of the mortgage.

During the boom, appreciably worse: Of those who took out mortgages at the 2006 peak, more than 40% are under water.

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Source:
1 in 4 Borrowers Under Water
RUTH SIMON and JAMES R. HAGERTY
WSJ, NOVEMBER 24, 2009

http://online.wsj.com/article/SB125903489722661849.html

Category: 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.

16 Responses to “CoreLogic: 1 in 4 Borrowers Are Underwater”

  1. danm says:

    So basically, we’ve got 1/7 homeowners not paying his/her mortgage. So that would be 10 million househould with at least 12K more per year to spend on crap.

    It’s no wonder that the rest of the economy has been holding up better than expected and that we have semblance of stability.

    So let’s say all underwater households send they keys to the bank and walk away. Doesn’t the average Fico drop drastically? If everyone’s score is bad then who cares? All of them can go back and buy their houses for cheap at a good locked-in rate (government could make sure this happens).

    The Fed could just keep on picking up the bad mortgage debt and replacing it with freshly printed dollars.

    You end up with huge inflation but isnt’t that a government’s dream scenario?

  2. call me ahab says:

    “huge inflation . . isnt’t that a government’s dream scenario?”

    no doubt

  3. David Yaseen says:

    Do these numbers include delinquent mortgages?

  4. Aeolus says:

    You can get the state by state and market by market numbers by email from CoreLogic. Average market value of a home in California with a mortgage is still $418,000 with an average mortgage of $301,000.

    Anybody think the market can stabilize with an average home price of $401,000?

    There’s another interesting number lurking somewhere in these reports, which is that there are two Americas, one very much upside down, and one with substantial equity and little debt.

  5. hue says:

    good thing we’ve avoided armageddon. these homeowners will continue to spend like it’s 1999. and buy stuff made in China, the builder of new forbidden cities http://bit.ly/8kGTF4 (i know, it’s the terrorist network) via Infectious Greed.

  6. call me ahab says:

    i wonder if the market will give back all the gains based on the BTE 3.5% GDP versus the revised WTE 2.8% GDP-

    hmmm . . . my guess is . . .

  7. ashpelham2 says:

    It seems like it is just going to take good old fashioned TIME to work this thing out. I would rather not see governments try and prop up the prices of homes artificially, as propping up equity prices back in 2002 and 2003 is partly what lead us to this point. Fall if they must. And fall those prices will. I sound like Yoda.

    In time, and with homeowners getting a chance (ie, keeping their jobs), this debt will pay down. It requires discipline, saying no to the things you want, and sometimes saying no to the things you need.

  8. hue says:

    OT, this is exactly how i remember the Flutie hail mary 20 years ago (yesterdie) when i happened to see it live http:// bit.ly/6QQJ7V

  9. benesposito says:

    @danm

    What you describe is something i worry about happening; “The Great Walkaway”. That kind of thing would be like an end of the world as we know it type scenario.

    If that happenned, while you might have a huge mass of people with similar credit scores, you’d have banks owning a phenomenal number of houses, and having to put them on the market. A bigger than ever housing price collapse would begin, and the solution is going to be lending back to these udnerwater walkaways? They won’t have any downpayment money, so what type of loan are they gonna get? Also, why would the bank lend to them regardless of FICO score in an environment where more and more walkaway people are diving the prices down? If they end up underwater again they’d just walk again. A great walkaway would cause a feedback loop of credit and asset price destruction that would make the fall of ’08 look like nothing.

    Look at the story of the woman who’s credit card plight started going viral with her call for everyone not to pay their bills. Check out how the bank responded. A great walkaway would ensure a depression….

  10. DeDude says:

    If there is about 100 million household in US then about 10% is under water on a mortgage, and only about 5% are more than 20% under water (and will take a long time or some serious price increases to get back out). The under water mortgage problem is probably going to have much less effect on the overall economy than what most people here think.

  11. hue says:

    dedude, it’s 1 out of 4 underwater in a mobile society. people don’t stay in their houses for 30 years. so they can’t sell and move, even if they can find another job, especially if they can find another job. so even if you’re only slightly underwater, you may just decide to bail. i personally know a few who bought a house 2 or 3 years ago, and thinking about walking — better off renting even with bad credit than paying a mortgage in negative equity for years. no money to upkeep upside down houses. bottomline, more bad loans, properties for banks, more housing inventory. but does that matter when banks mark assets to fantasy? or refuse to foreclose when people don’t pay?

  12. DeDude says:

    The 1 out of 4 is only for those that want to ignore all the people who do not have a mortgage. But for society as a whole (economy, mobility etc.) you have to consider all people (with and without a mortgage) – and then its only about 1 in 10 households. I am not saying that there will not be more people who bail and more people who will force their banks to accept a short sale. However, we may not quite get to the levels of losses for banks and investors that many people have been predicting.

  13. hue says:

    no one is ignoring houses without mortgages. it clearly says 1 out of 4 mortgaged borrowers. it’s the poverty effect.

    if you didn’t have a mortgage on your house, and don’t plan to sell, did your house increase in value during the boom? or lose in value during the crash?

    it’s all conjecture anyway, we don’t know how it will really shake out, until it does. look at what we thought about Y2K, or the decade that follows.

  14. ashpelham2 says:

    What I am learning as I get along in my years is that a lot of the stuff I thought “adults” had under control and had figured out, they just made it up as they went along. Two examples are this year’s bank bailouts, which had no semblance of order of responsibility, and the distribution of H1N1 vaccine.

  15. [...] 1% of households with mortgages have negative equity, compared with 23% in the US, according to this report. So is it just Australia being the lucky country, or is there more to it? I’ve got a few [...]