Thursday, October 9, 2008

WSJ: Nearly 1 in 6 Homes Underwater

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We've written about this extensively in the past (Zillow.com already reported 33% of those who bought in the past 5 years are underwater), after another 10-20% drop in home prices, I believe we're going to see > 1 in 4 homeowners under water - no matter what year they bought.

Frankly we were very early on this but got very frustrated thinking the market would never face reality with the repeated market rallies and talk of "imminent rebound in housing" throughout the past year and a half. This is what makes the stock market tough - not only do you have to be correct in thesis, you have to be accurate in timing when the market wakes up to the reality of said thesis, because for many months it actually runs up stocks that run counter to the thesis, which only adds to the frustration. Bugger.

  • The relentless slide in home prices has left nearly one in six U.S. homeowners owing more on a mortgage than the home is worth, raising the possibility of a rise in defaults -- the very misfortune that touched off the credit crisis last year. The result of homeowners being "under water" is more pressure on an economy that is already in a downturn. No longer having equity in their homes makes people feel less rich and thus less inclined to shop at the mall.
  • And having more homeowners under water is likely to mean more eventual foreclosures, because it is hard for borrowers in financial trouble to refinance or sell their homes and pay off their mortgage if their debt exceeds the home's value.
  • About 75.5 million U.S. households own the homes they live in. After a housing slump that has pushed values down 30% in some areas, roughly 12 million households, or 16%, owe more than their homes are worth, according to Moody's Economy.com. The comparable figures were roughly 4% under water in 2006 and 6% last year, says the firm's chief economist, Mark Zandi, who adds that "it is very possible that there will ultimately be more homeowners under water in this period than any time in our history."
  • Among people who bought within the past five years, it's worse: 29% are under water on their mortgages, according to an estimate by real-estate Web site Zillow.com.
  • Prices are back to 2003 levels in the San Diego and Boston metropolitan areas, and back to 2004 levels in Las Vegas, Los Angeles, San Francisco, Fort Lauderdale, Fla., and Minneapolis, according to First American CoreLogic, a data firm in Santa Ana, Calif.
  • In contrast with the 12 million home borrowers estimated to be under water, 64 million have equity in their homes. These include 24 million households who own their homes free and clear, and 40 million whose homes remain worth more than is owed on them. (well 24M of 75M should be ok)
  • Housing markets don't tend to turn around quickly. The price slump in California in the early 1990s, for instance, was a long grind. According to the S&P/Case-Shiller home-price indexes, Los Angeles prices peaked in June 1990 and didn't bottom until March 1996. They didn't get back to their 1990 peak until 2000.

[Sep 26: 15% of Americans Spend 50%+ of Income for House Payments]

[Aug 12: Bloomberg: One Third of New Home Buyers in Past 5 Years Now Underwater]

[Aug 4: WSJ - After the Bubble, Ghost Towns Across America]

[Jul 10: Foreclosure Activity Map]

[Apr 26: Bankrate.com - Average Joe Still Can't Afford a Home]

[Mar 25: WSJ - Wave of Foreclosures Drives Prices Lower, Lures Buyers]

[Mar 19: Alt A Mortgages Beginning to Breakdown]

[Jan 24: They Said it Could Never Happen. Ever.]


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