click for larger graphic

 

We were having a conversation this weekend about underwater mortgages, when the conversation turned to a phrase I don’t hear all that much: Near Negative Equity.

 

 

 

Source:
Bloomberg BRIEF: Economics
U.S. 2013 Economic Overview and Outlook
Joseph Brusuelas, January 2013

Category: Digital Media, 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.

17 Responses to “Near Negative Equity Still A Policy Challenge”

  1. NoKidding says:

    NNE implies that there is a slice of PEs who would go negative in a slight RE slump.

    Should there not also be a shaded area for NPE, implying the group that would go positive in a slight RE recovery?

    Half-full vs half-empty.

  2. CSF says:

    If the homeowner sells there’s not enough cash for a new downpayment. Maybe not enough cash for moving expenses and a rental deposit. This has ugly consequences for job mobility, and it may explain a component of our long-term unemployment problem.

  3. BennyProfane says:

    Wait, whoa, I heard housing has bottomed, and the only direction is up?

    BTW, beware of the new “rental” REITs. http://seekingalpha.com/article/1109741-2-brand-new-reits-that-have-strong-dividend-potential Saw this coming. Like the investors buying up all of these crappy homes were actually going to make money off of them as landlords. They’re just waiting for the fools chasing yield.

  4. Lyle says:

    Note that one needs 7 to 8% for the fees assesed to sell a property, including the real estate commission, title insurance and the like. So one way to put it is how much equity do you need to be able not to bring a check to the closing? Of course by this metric everytime you buy a house you are underwater for a while, just like with autos when you drive a new car off the lot you are underwater in many cases.

  5. capitalistic says:

    In this market, it’s impossible to determine the fair market value of properties are. Regions like Boston, Texas and DC are very stable. But within these same regions some zip codes are atrocious.

  6. Frilton Miedman says:

    A deeper exploration of where previous equity has gone might be a better gauge of how to bring it back.

    In effect, home prices were inflated with artificial demand by pawning sub-primes en masse, those loans were sold off as “triple A” assets, and TBTF’s shorted them without disclosure under protection by the CFMA as derivatives.

    A middle class now worth 30% to 40% less than it was in 2007 isn’t going to be able to reverse negative equity without wage growth, much less increase demand to 2007 levels, low rates are only staving the fiscal effects of 2008, keeping heads above water, barely.

  7. Hammer of Thor says:

    This is very interesting considering you need to pay your RE agent ~5% of sale price upon closing. Rising prices could create a very powerful positive feedback loop.

    ____

    BR: You have had rising real estate prices as the FOMC keeps driving mortgage rates down. We seemingly bottomed a few years ago.

    What does this mean for your feedback loop?

  8. rd says:

    Home equity loans probably make for significantly more negative equity cases than the first mortgages only. So the actual situation should be worse than it appears on this graph.

    It will be interesting to see what happens as employment picks up and people finally walk away from their houses in order to take a new job in another city.

  9. chartist says:

    Here in my hometown of suburban Cincinnati, we don’t get severe price swings. A few folks who had to move in 2008 took a hit and some crazies who bought with nothing down in 2006 sent in some jingle mail. But now, demand is back in pricing is firming, at least in the sub $500K arena. There is plenty of inventory in the $1mm plus market of Indian Hill however.

  10. louis says:

    BR what came of the underwater discussion?

    To all those new landlords good luck chasing a check from a meth head. And you thought the Joker was only in those batman movies.

  11. Frilton Miedman says:

    Ugly thought,

    If the Fed is the only reason equity prices are rising (in light of lack of wage growth since 2008), and homeowners use equity in an attempt to consume, we might be in the midst of a third repeat of what’s happened over the last 12 years.

    This would go hand-in-hand with BR’s blog last week on secular bear/bulls from a pure chart view (as well as last months assertion we have a 20% fall coming within 18 months)…and the possibility we have a few more years, another leg down to go in this bear.

    Let’s not forget, although consumers are deleveraging, we’re still at historic highs for consumer debt to income, we’re in frail territory, one stupid move from D.C., T rates stat falling or a relapse in home prices is all it might take for a repeat of 2002 & 2009.

    The extreme end of the GOP will fight tooth and nail before allowing any further stimulus, to the extent the damages incurred could be substantial before they saw any writing on the wall.

  12. BigBlueCrab says:

    Yes ” Real estate always go up in the long term”…where have I heard that before?
    Sooooo..the market is flat with the lowest rates in 50 years? Where were prices be when this
    rate “permanent bottom” starts rising? I think I will continue to keep my powder dry thanks…..

  13. Mike in Nola says:

    Recently read a piece naming a number of cities where housing sales fell but inventory decreased. Tells you all you need to know about how free from manipulation our housing market is.

  14. uglyowl says:

    Can’t take any anything seriously by a group that makes the 4.7 piece larger than the 22.3 piece on a chart.

  15. NoKidding says:

    Remember also about a third of homes have no mortgage. Twenty percent on this chary translates to about thirteen percent of “homeowners”.

  16. Hammer of Thor says:

    Considering how many households are still underwater or near underwater per your chart, prices would need to continue to climb materially for the feedback loop to gain momentum.

  17. SecondLook says:

    Somewhat of a segue, but I thought this site has a very interesting insight into what really affordable housing.

    http://htaindex.cnt.org/

    The basic premise that is it’s not the cost of a house relative to income that is important, but also the cost of transportation to and from that home.

    (The latter almost certainly likely to rise faster than either, or both, average fuel efficiency of the American fleet, and average household incomes…)