Many readers may not want to hear what I have to say. I said it before and it brought out responses from a few people that don’t like reading statements they percieve as doom and gloom..... Maybe I didn’t do a good enough job of simply pointing out some GLARING STATISTICS that can’t be denied nor be thrown out with the bath water. People remember this – politicians can put a spin on any statistic and make it look good. That is what politicians do. Read the facts below – I am not a gloom and doomer. I am a realist!
People with good credit and equity left in their house need to know what’s up. They need to understand how lucky they are that bills get paid every month. They need to become an expert on saving money and reducing debt, for these are the rare breed that will hunker through this and possibly even profit from our current economy. This message is intended for people who are above water because people who are $100,000 plus under water on their house, people who have been out of work for months, people whose income has been slashed, many of these mentioned people with excellent credit through all of this. Well these people just don’t care anymore. Read below with an open mind and try and comprehend. Do not hide from reality. This is reall world. If you are one of those that is laughing right back at this economy you are awesome and I am jealous. If you have been crushed by this economy – god bless you….
Our Vice President – the man just under the head honcho - said just a few days ago, “we misread how bad the economy really is”…. SHOCKER!!!
DUH! Let me tell you what I see must rebound before we even hit the bottom, let alone recover. I don’t care where you live……
PROPERTY VALUES - In MOST areas – I said MOST – values continue to decline. For the first time home owner and the mortgage banker who is originating these loans, you guy’s should be kickin ass. BUT for the millions who can only dream of purchasing in this market, well they are simply getting crushed.
Mortgage insurer PMI Group Inc. says home prices continue to fall and will likely be even lower in two years. Their recent index shows approximately 85 percent of the nation's 381 metropolitan statistical areas (MSAs) are now facing increased risk of lower home prices in 2011. Florida, California, Nevada and Arizona continue to have the highest risk scores but an increased risk of lower future prices is now spreading across all regions of the nation because of the significant increases in unemployment and foreclosure rates. Some experts are now predicting another 40% drop in home values are inevitable. Hmmmmm let’s read on –
UNEMPLOYMENT – the number of unemployed Americans will top 10% within two months, possibly even next month. Watch the news - last I heard GM and a few other pretty large employers were letting go employees by the tens of thousands. Even hospitals are cutting their budgets. HOSPITALS!!!
Imagine Emergency Departments closing for the night. How bizarre huh?
FORECLOSURES - I see somewhat of an algebraic formula here – check it out…
Property Values + Unemployment = Foreclosure what a genius thought –
If you own a house and you owe more than it is worth (property value) +
You ain’t got no dough to pay the rent (unemployment) =
You gonna lose your house!!!
Why is that so damn hard to understand? Statistics show in in every 5 homes in America is upside down on their mortgage – read on…..
BAIL OR NOT? – A study of the Massachusetts housing market by researchers from Northwestern University and the University of Chicago concludes that a home owner’s propensity to default increases the further their loan goes under water.
The study found that home owners begin to walk away after declines of 15 percent or more. More than 17 percent of households would default, even if they can afford to pay their mortgage, when the equity shortfall reaches 50 percent of the value of the house.
Recent studies show 20% of American homeowners are under water. TWENTY PERCENT! That is 1 out of 5 homeowners. If housing prices have another 40% drop to go let’s take a look at something here.
Your current house value is 300K You owe 350K you continue to maintain good credit and pay on time. Next year your home is worth 240K. That is simply a 20% drop, a number that can be seen as fairly conservative. So now your house is worth 240K and you owe 345K – It could possibly take 10 – 15 years of mortgage payments simply to get back to frickin even! Highlighted below is a new term you are going to start hearing more and more… trust me on this. This term has no prejudice to credit or income. This demonstrates that housing values must hit bottom before anything will even remotely begin to get better in our economy. The new saying will be –
Strategic Mortgage Default
MORE BAD NEWS – Bank Failures will be on the rise. It is inevitable. Just look at what the subprime mess did to them. The conforming, A+ credit loans nobody expected to go bad are going to start happening very soon. Given the example above, if you were that far underwater and it could take up to 15 years to break even, what would be the most strategic financial decision to make? As property values continue heading south more of those good borrowers will choose to simply walk away. More bad loans = more bank closings. There is NO WAY AROUND IT….
from Forbes 7/7/2009 --
"Rising unemployment, a shrinking economy and falling home prices have left U.S. consumers increasingly unable or unwilling to pay credit card bills and home equity lines of credit.
THE SOLUTION – Now there is your gazillion dollar question. Would it make sense if the government told the banks, which they own anyway, to just forgive any mortgage amount owed on a property until the loan to value hits 80%. Hs the government already spent that much money bailing out the banks anyway? And speaking of the bailout money, I called my lender, told them I owed more than my house was worth, and they told me because I always pay on time there was nothing they could or would do. My current lender held their hands out to the government for billions in TARP money, still went belly up, and was purchased by a bigger bank with TARP money they received from the government. WTF???
Maybe this 2nd round of government stimulus they are now talking about – (would it really be the 2nd round or the 3rd, 4th or 5th?) – maybe this money can really be not just earmarked but handed directly to underwater homeowners and small business. Fix those two core units that America was built on and then we can begin a recovery. Hopefully it won’t take the next 5 – 10 years to figure this out. Until then --- God bless you all ~~~
MARYLAND MORTGAGE EXPERT
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