AN INCREDIBLE, SCARY STATISTIC - Nearly 1 in 6 U.S. Homeowners are "Under Water" on their Mortgages!

By
Real Estate Agent with Dean's Team - Keller Williams Realty Partners Chicago IL

What an incredible fact - what a terrifying statistic! 

AN ESTIMATED 16 MILLION OF 75.5 MILLION HOMEOWNERS NOW OWE MORE THAN THEIR HOUSE IS WORTH!

Here are the latest statistics, compiled by Moodys.com.  Nationally, 16% of U.S. Homeowners owe more to their mortgage lender than their home is currently worth in today's real estate market.  That's a big jump from last year, when an estimated 6% were in the same predicament, and 2006, when only 4% found themselves "upside down."

This effects of this mass disappearance of home equity are wide ranging.  It impacts saving and investing, day-to-day retail spending, and purchase of big-ticket items - cars, major appliances, and the like. 

Naturally, homeowners who owe more than their home is worth will have a difficult time refinancing, and may be closer to foreclosure if personal financial hardships develop.  Boarded-up, foreclosed houses in a neighborhood or block dissuade others from purchasing in that area, further exasperating, and perhaps lengthening, the real estate downturn here in Chicago and in other areas of the country.

The percentage of homeowners "upside down" increases for those who purchased within the last five years, according to real estate website Zillow.com, is far higher - 29% of these homeowners are suffering home values less than what they currently owe.

Currently, average prices in the Chicago Metro Area have retreated to mid-2005 levels, with prices now averaging 6.6% less than their high water mark here.  An estimated 21.4% of Chicago Area Homeowners are "under water" in their mortgages.

The pullback is even worse in San Diego and Boston, where average home prices touch levels not seen since 2003.  The Metro Areas of Los Angeles, San Francisco, Las Vegas, Minneapolis, and Fort Lauderdale FL, which have fallen back to their mid-2004 averages.

Statistics compiled by the Mortgage Bankers Association shows, nationally, 9.16% of all homeowners were at least a month or more overdue on their mortgage payments during the Second Quarter of 2008 - the highest delinquency level in 39 years.  In 2007, by comparison, 6.52% of homeowners were at least a month behind.

As home values have fallen, more and more current homeowners lack the equity required to refinance their existing mortgages into ones offering more affordable payments.  Falling values also scare banks from offering home loans they perceive to be riskier, so they tighten loan underwriting standards to compensate for that increased risk.  Indeed, in the Third Quarter of this year, mortgage lending dropped 44% since this time last year, according to the publication Inside Mortgage Finance.

Most mortgages now heading for default were originally issued in 2006 and 2007, when the housing market was booming in most areas in the U.S., and lending standards were quite relaxed.  Many buyers a couple of years ago purchased with little or no money down - assuming equity would grow automatically.  Falling values were not anticipated, and equity growth for these borrowers has been minimal, if not negative.

Last July, Congress passed massive relief legislation for homeowners.  The program was designed to help borrowers who owe more than their homes are worth to refinance into a government-backed loan.  However,  their mortgage company must first forgive part of the original principal - which some banks have not been too eager to do.  

Banks may also renegotiate the rate of loan interest on delinquent loans, dropping monthly payments without reducing the amount of the principal debt.  Some banks favor this type of a workout, so the outstanding balance remains out of kilter for the distressed homeowner. says Tom Deutsch, of the American Securitization Forum.

Which homeowners are the most "upside down" on their mortgages?  As one might expect, those in the highly speculative, fastest appreciating areas of Arizona, Nevada, California and Florida have the highest percentage of over their head homeowners.  Chicago IL has a lesser concentration, while less-speculative real estate markets in many parts of Texas and North Carolina still feature slightly rising average prices, or only modest housing price declines.

Homeowners in central city neighborhoods, including those in the Downtown Chicago Neighborhoods of The Loop, River North, The Gold Coast, and Lincoln Park, seem to have fewer homeowners underwater, as these neighborhoods have not seen precipitous declines in value, compared to further-distant neighborhoods and suburbs.

One important point to note here, that might serve as warning to homeowners all over the U.S. - housing markets do not tend to rebound quickly!

In the Los Angeles CA market, for example, over the last 20 years, the Standard & Poors/Case Shiller Price Index of average home prices indicates, historically, that LA home prices peaked in June, 1990, and then bottomed in March, 1996.  They didn't return to their 1990 peak until 2000 - ten years after local prices started falling.

See our post from yesterday afternoon via BlogChicagoHomes.com for more, as well as a link to James R. Hagerty and Ruth Simon's column in last Monday's Wall Street Journal.

DEAN & DEAN'S TEAM CHICAGO

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Rainmaker
221,397
Michael Wayne Jackson
Coldwell Banker - Novato, CA
Realtor - Seniors Real Estate Specialist Novato

What a stagerring statistic. This is very scary for all of us.

Oct 10, 2008 07:51 AM #1
Rainmaker
1,021,569
June Piper-Brandon
Long & Foster Hampden - Baltimore, MD
Piecing Dreams One Home at a Time

Amazing.  I didn't think it was that high.  But I guess a lot of people were attracted into refinancing their properties when rates were low and taking out cash to do things with and now they are upside down.  A very sad state of affairs.

Oct 10, 2008 08:02 AM #2
Rainer
16,882
Barry Bridges
Barry Bridges Weichert Realtors Bridges & Co. - Smith Mountain Lake, VA
Lake professional

I don't accept these figures for one minute. I read this same article today by the Wall Street Journal. It is very unscientific at best. Are they going to try and tell me that they know what every ones mortgage balance is? This is nothing more than negative hype from the press again. They are spouting off on something they could NEVER back up.

All you homeowners out there please don't take this media crap seriously. We have problems no doubt. But look at your neighbors. Do you really believe every sixth one is upside down in their home. Many people are but NOT that many. That paper should be asamed for printing this.

Oct 10, 2008 08:21 AM #3
Rainmaker
175,187
Richard Stabile
Re/Max Real Estate Limited - Oradell, NJ
Bergen County New Homes Builder Realtor

I the hope is that, people keep their kobs and income so they can wait it out.

Richard

Oct 10, 2008 12:59 PM #5
Rainer
41,050
Kristin Hunteman
True Title Company - Clayton, MO
Escrow Closing Officer

Wow! What a crazy statistic.  I would have guessed it to be closer to 1 out of 10.  Thanks for the info.

Oct 10, 2008 03:14 PM #6
Rainmaker
643,145
Marchel Peterson
Results Realty - Spring, TX
Spring TX Real Estate E-Pro

DEAN, that is a sobering statistic.  Here in the Houston area we have not been hit as bad as most of the country but we are still dealing with a number of short sales and foreclosures. 

By the way I had Kathleen design my point 2 agent site and I remember looking at your site when I was coming up with the design.  You have a nice design by the way.

Oct 10, 2008 03:24 PM #7
Rainer
208,371
James Wexler
wexzilla.com - Scottsdale, AZ

these are scarry , but probably accurate numbers.. here in AZ we are off more than 30% from our highs. The numbers are probably even more distressing

Oct 10, 2008 06:22 PM #8
Rainmaker
340,210
Judy Greenberg
Coldwell Banker Long Grove - Buffalo Grove, IL
Coldwell Banker - Buffalo Grove - Long Grove Homes

It scares me to death...  I'm seeing more and more reo's, and short sales in the suburbs than I have ever seen.  In my opinion its going to get much worse before it gets better... 

Oct 12, 2008 12:12 AM #9
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Dean Moss

Dean's Team Chicago IL Real Estate Team
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