“Underwater Mortgages” Statistics

Yesterday The Wall Street Journal published an article titled “One in Four Borrowers Is Underwater.”

The story contains a variety of statistics with regard to homeowner equity and home ownership issues.  It gives a good overview of the situation, and this facet of the residential real estate situation is not pretty.  As the headline states, 23% of all mortgage holders are “underwater,” i.e. they owe more on their mortgages than the underlying house is worth.

There are several reasons that this situation is important.  A couple include:

  1. These statistics are being generated despite the fact that there has been massive intervention and stimulus programs directed toward residential real estate.  The majority of intervention and stimulus programs in some way, either directly or indirectly, are aimed toward supporting housing.  It is highly disconcerting that we have such a dire situation despite such outsized intervention efforts.  We, as a nation, have committed, both directly and indirectly (via various “guarantees”) an epic amount of money toward this problem.
  2. As I have stated before, I do not believe that we have even come near the bottom of residential real estate prices.  To the extent that residential real estate prices fall from here, this “underwater mortgage” situation will be exacerbated.  A resumption of falling house prices would fuel many other problems, including the temptation of homeowners to commit “strategic defaults.”

As I have written previously (my other Real Estate posts are under the “Real Estate” Category listed on the right-hand side of the home page) the real estate issues facing this country are severe, very complex, and not well understood.


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