Chapter 4: Upside Down Housing Pie
Upside down housing pie is about as tasty as eating humble pie, yuk! If you owe more than your house is worth on the Denver market today, you are eating “Upside Down Housing Pie” every month when you make your mortgage payment – making a payment on a loan that is larger than value of your home. Two key factors are at work here: if you have a job and your personal finances are OK, you are likely to keep making the payments simply because you need a place to live for you and your family. However, if you lose your job, you can’t feed your family by throwing money at a huge mortgage. You may not walk away, but you may stop paying. Consider, too, how upside down are you in your mortgage?
Folks who owe far more than their home can conceivably sell for are much more likely to give up and stop sending in the mortgage payments. Economists and statisticians who have analyzed this situation see the interplay of how far down a homeowner is against the current value of their home and their current job situation as the two main issues a family will consider in making their mortgage payment.
Upside down housing pie is really important to how quickly housing recovers. Colorado, in December 2011, had about a 20% Negative Equity share of all mortgages outstanding, according to CoreLogic’s reports. One in Five Colorado Mortgages are greater than the home’s value. This negative equity share is higher in Denver and higher again, if one includes homes with 5% equity or less, which could be used to cover real estate fees and closing costs were one to sell. Clearly, the decisions of these homeowners are crucial to the future of foreclosures and short sales statewide and in Denver, too. Over 4% of homes with mortgages in Colorado today are 90 days delinquent or further down the road toward losing their home. This phenomenon seems to take on a neighborhood dynamic. Again, Denver is a little higher. Some of our most successful borrowers have found this sort of area and had great success investing on the heels of these situations.
Recovery will come sooner so long as homeowners keep eating their Upside Down Housing Pie. Job setbacks and further market value declines could lead to more defaults, delaying Denver’s and Colorado’s recovery.
Check out my other Blog Posts and Free Reports on my Web site for additional ideas about the market. Read more tomorrow on this fascinating subject!
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