Skip to comments.1 in 4 Borrowers Under Water
Posted on 11/23/2009 11:30:26 PM PST by TigerLikesRooster
1 in 4 Borrowers Under Water
By RUTH SIMON and JAMES R. HAGERTY
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.
(Excerpt) Read more at online.wsj.com ...
Here’s the money quote for me:
“Even recent bargain hunters have been hit: 11% of borrowers who took out mortgages in 2009 already owe more than their home’s value.”
He was right by golly. Dobbs is the second messiah. /s
People are taking homes they shouldn't own by pocketing the eight grand.
I am not at all surprised. The scale sounds reasonable to me. I recently replied to a Freeper who refused to believe this and even offered to help calculate the value of the home she bought at peak to see how far underwater she was, if any. Never heard back from her...
But yes, between the numbers who bought at peak, those who put no money down, those with interest only loans or option adjustables, and knowing all the equity that was loaned back out of real estate while people squandered the money, it is no wonder at all that a quarter of all mortgage-holders are upside-down on their loans.
I bought one year ago for $225,000, long after the bubble peak and after prices were off over 40% from peak here in the greater Sacramento area. My house is probably worth about $205,000 or less. I put $45,000 down and my loan is $180,000. It doesn’t have to go down too much more before I have negative equity in the house.
Fortunately I am in good shape and am living here for the long haul, and bought a small, lesser expensive home in the best neighborhood in town. So long as I don’t lose my job (I shouldn’t) I will come out of it just fine. Many won’t be able to say that during this depression.
How many of those 25% will choose jingle-mail over sticking it out? We’re still in trouble and the fake stock market numbers don’t change that fact one iota.
That is a stunning statistic. I can only assume they didn’t put 20% down, but who knows? Even though I readily admit house prices are still dropping, I don’t know of anywhere that they dropped 20% year-over-year to date. I’ve lost about 10% in my house since buying last December here in the greater Sacramento area.
I know lots of couples who are underwater. They bought the traditional way, 20% down, fixed mortgage, buying based on a percentage of their income, etc. but the market has fallen so much. These young couples are choosing to stick it out, but it is a moral dilema because they don’t believe they’ll ever recoup the loss in their equity, and they continue to pay a mortgage that’s much more expensive than it would be to rent.
Selling would be impossible, so they are literally throwing hundreds of dollars into a hole each month in the form of mortgage payments, taxes, insurance, etc.
We helped our son buy a foreclosure this summer (he’s young, 21), but had savings and the house was too good of a bargain to pass up. (I watched the market everyday for months and swept in when I saw one I knew was worth more than double what the bank was asking.) The house was a mess (cosmetically) though and he and his dad worked all summer to fix it up, so there is a lot of sweat equity in it. Fortunately, even if prices fell another 40 percent, he’d still be above water. Those hurt the hardest are the ones that bought at the peak. It’s a sad situation. All those I know have managed to keep their jobs, so financially they’re able to afford the payments, but a job loss would probably put them into foreclosure.
Read your post, and in the long run...you are doing the right thing.
I have a family member who is in the same situation in Orlando, only is more underwater. And, they actually have enough money to totally pay off the mortgage....but so underwater that it would be better to just continue paying on the mortgage until property values rise again.
In the neighborhood they live in....the houses were selling at 270K in 2006....now they go for about 110K (fortunately my family member paid only 210K in 2007....with about 25% of it down).
Not really the ones one put nothing down though. It's the people who rolled over a few houses a put a sizable chunk down. I don't know how much I feel for them though. I was surrounded by them.
They didn't make some money from cashing out the equity and do something smart, they cashed out the money and just kept buying bigger and fancier houses, TVs, pools with grottos, custom made tiki bars. etc. BUT, in their minds they put 200k down and now they are upside down and will lose it all because even still they bought houses and, more importantly, lifestyles they couldn't afford. You can't afford to cool a 4,500 square foot house in Phoenix in the summer, keep the pool running, etc. all while still trying to pay the 600,000 mortgage on the incomes many of these people have.
buy a foreclosure
That’s probably where a lot of those pre-existing home sales being up state run media was bragging about yesterday came from
I’m in Florida and read an article in our local paper about the uptick in housing sales. The stats, IIRC, were that 50 percent were foreclosures.
Seems that the municipalities and counties in the DFW area of Texas just haven’t gotten the word that property/home values are supposedly going down everywhere.
My appraisal...and the corresponding tax dollars...has been increasing every year. I bought my house in 1986 and it’s now appraised at over $70k more!!! Many more tax dollars for the schools, hospitals, city and county.
The tax appraisal process is ridiculous, but at least I only owe less than 1/4 of the appraised value.
I couldn’t tell you how much my house is worth nor do I care how much it’s worth, we bought it many years ago because we liked it and we still do. It’s 2300 sq-ft and suits us nicely, it’s not the nicest on the block or the biggest but unlike many of the others it’s paid for. The reason it’s paid for is because we bought what we could comfortably afford even in the worst of time’s, the same can’t be said for the other owners on the block. Over the years we’ve seen many of the other house’s bought and lost due to people buying much more than they could afford and never looking at the downside of life and how it effect’s they’re ability to make payment’s. They don’t get much sympathy from me.
Our neighbors sold their house at the peak of the market, after living in the house for over 40 years. The fellow who bought it got into a bidding war and paid some $17K over asking price. When I look at Zillow.com, the chart of estimated value on the house has a big spike showing his purchase. His value has dropped from around $800K to $500K. (East Coast suburb - nice but not mansions).
Our new neighbor was living fat when he first moved in. He had recently divorced his wife to live an "alternate lifestyle". He had an executive position with a cushy salary, partied a lot, and sent his daughter to an expensive private school. He bought the ex-wife a very nice house around the corner, and did extensive renovations and improvements to his new home. Our old neighbors told us that he owned several properties at the time because of all these changes in his life - moving out of the executive family home to the perfect combination of two homes, etc, etc. In the past year he's lost his job. I suspect he's OK for a while, thanks to generous severance terms, but he's certainly taken a big hit. If the parties stop, or the Mexican lawn crew stops grooming his property, I guess we'll know he's getting worried.
Ironically, the firm he worked for specialized in outsourcing.
I agree with your observations. Unfortunately, in many housing markets there has been little recent construction of modest homes. In our area, new construction has been heavily skewed toward the high end - large homes, lots of amenities, vaulted ceilings, imposing appearances and big, big price tags. Between rising overall price levels and the top-heavy new construction market, young families have been encouraged to take on more debt than they could really afford. It takes some persistence and independent thinking to seek out an older, smaller and more affordable home (or townhome) in these circumstances. Unfortunately, many people bought into the "buy it now before the price goes up even more" hype and over committed.
“Selling would be impossible, so they are literally throwing hundreds of dollars into a hole each month in the form of mortgage payments, taxes, insurance, etc.”
How can that be? We’ve ALWAYS been told that renting is throwing our money away, and that buying builds equity. Oh well, times have changed a bit, I guess.
There have been a LOT of FHA loans with less than 5% down.
FHA is on the agenda to blow up and need a bailout. Just watch. It’s coming.
Have a look at this list of FHA programs. It is sub-prime lending all over again, with high LTV’s, low FICO’s (620 or better, which is only a little bit better than the worst of the sub-prime dreck) and lots of seller-involved financing on top of it all.
I trust you on that. I haven’t heard the problem with FHA so thanks for the heads up. I’ll put it on my depression radar. But I am not at all surprised to hear about this, as I always understood FHA to give things like 3% loans.
Thanks for the link.
You would think the shattering of the housing bubble being so recent and so severe, most people would wise up. No, not the case. I’ve listened to financial programs where new broke buyers are trying to find someway to buy houses they can’t afford. Nothing changes.
Sacramento area houses are down about 50% from peak, or down to around 2001/2002 property values. Believe it or not, I think we could go down to about 1998 values before the bottom. My home could go down to $125,000. It is not impossible. That would be almost a 50% drop from what I paid.
That said, I studied my neighborhood pricing trends intensely and tracked selling prices back to the early 1980s. I’m pretty confident my home won’t fall below $175,000, but who knows. I never would have bought if I thought there was more realistic downside than that.
I think we have a lot of upside as well due to the governments desire to inflate, but we won’t see that inflation for years, so those who are in their homes less than 10 years are not going to be helped by inflation holding their prices up.
It is going to be a wild ride.
FWIW, one of the biggest indicators I used to decide when to buy my home was when the montly mortgage for homes in my neighborhood dropped to below monthly rents in my neighborhood. I’m in a cruddy little valley town, but I am in the best neighborhood in that cruddy little town, so I did try to comply with “location, location, location.” You have to live somewhere and I made a calc that I was not going to save money be renting and that my home would appreciate in the 15 years I would be in it.
Of course, I could be wrong. We could have Japanese style lost 2 decades. I took a very educated risk and we will see what happens. If we get that full blown deflationary depression, then I screwed up. If we get an inflationary depression, then I’ll be OK. Eventually all asset values will rise. It is just a question of living long enough to see it! lol.
And that is the roadmap to house buying happiness. It is a shelter, not a get rich quick scheme. Too many people treated it as a get rich quick scheme during the bubble. “If I can’t afford it, I can always flip it”. Now they are screwed.
You have the plan right. Homes appreciate about with the rate of inflation, no matter what anybody says. To that end, they are a place to live in that tends to not collapse in value too badly because you put so much money into maintaining it.
I have long preached that for many single people or people with low income, renting is going to be a better investment over the long term than buying a house, paying 30 years of interest and home maintenance.
If everybody treated a house as a home in the way you did, we wouldn’t be on the edge of a depression today. I have no sympathy for the underwater home owners either. You are responsible for your own financial decisions. That said, the financiers and politicians that pushed them need to die quickly and burn in hell.