About half of U.S. mortgages seen underwater by 2011 NEW YORK (Reuters) – The percentage of U.S. homeowners who owe more than their house is worth will nearly double to 48 percent in 2011 from 26 percent at the end of March, portending another blow to the housing market, Deutsche Bank said on Wednesday. Home price declines will have their biggest impact on prime "conforming" loans that meet underwriting and size guidelines of Fannie Mae and Freddie Mac, the bank said in a report. Prime conforming loans make up two-thirds of mortgages, and are typically less risky because of stringent requirements. "We project the next phase of the housing decline will have a far greater impact on prime borrowers," Deutsche analysts Karen Weaver and Ying Shen said in the report. Of prime conforming loans, 41 percent will be "underwater" by the first quarter of 2011, up from 16 percent at the end of the first quarter 2009, it said. Forty-six percent of prime jumbo loans will be larger than their properties' value, up from 29 percent, it said. "The impact of this is significant given that these markets have the largest share of the total mortgage market outstanding," the analysts said. Prime jumbo loans make up 13 percent of the total market. Deutsche's dire assessment comes amid a bolt of evidence in recent months that point to stabilization in the U.S. housing market after three years of price drops. This week, the National Association of Realtors said pending home sales rose for a fifth straight month in June. A widely watched index released in July showed home prices in May rose for the first time since 2006. Covering 100 U.S. metropolitan areas, Deutsche Bank in June forecast home prices would fall 14 percent through the first quarter of 2011, for a total drop of 41.7 percent. The drop in home prices is fueling a vicious cycle of foreclosures as it eliminates homeowner equity and gives borrowers an incentive to walk away from their mortgages. The more severe the negative equity, the more likely are defaults, since many borrowers believe prices will not recover enough. Homeowners with the riskiest mortgages taken out during the housing boom have seen the greatest erosion in equity, in part because they were "affordability products" originated at the housing peak, Deutsche said. They include subprime loans, of which 69 percent will be underwater in 2011, up from 50 percent in March, Deutsche said, Of option adjustable-rate mortgages -- which cut payments by allowing principal balances to rise -- 89 percent will be underwater in 2011, up from 77 percent, the report said. Regions suffering the worst negative equity are areas in California, Florida, Arizona, Nevada, Ohio, Michigan, Illinois, Wisconsin, Massachusetts and West Virginia. Las Vegas and parts of Florida and California will see 90 percent or more of their loans underwater by 2011, it added. "For many, the home has morphed from piggy bank to albatross," the analysts said. source
We are also in this situation. Its a toughie.Its gonna take another 4 to 5 years to get out of this one. I still think the unerlying problem is the economy. Bolster the dollar and the economy here and teh housing problem will eventually go away.
I don't understand. What do you mean "we" are also in this situation? The housing problem is not a symptom, it is the problem. This is the reason the economy, worldwide, will be shit for the next 24 months - not the other way around.
What I meant is our house is also upside down . As far as it being the problem, im not too sure about that. We have had the bubble mentality drilled into us and it first started with the stock market crash of 2000-2001 ( I was a daytrader back then). We need more fiscal reponsibility here. As far as the housing market coming back it will take longer than 2 years.
@Bernard: The commercial real estate situation is bad and trending downward. It is nowhere as bad as in the late 1980's early 1990's. All commercial real estate vacancy is trending upward. Vacancy rates trail employment figures. Fire and lay-off people in March....and in August/Sept/Oct start looking for a way to dispose of the property/list it for lease and add to vacancy rates. Outstanding loans are a potential nightmare. One possibility is if lending instituttions can do so they may well move to extending existing loans. They may have no recourse. If the institutions are hard up for cash/liquidity then they will terminate loans and force bankruptcy's. I expect a lot of problem loans may well be extended...basically mitigating against foreclosures and bankruptcys. We will see over time, though.
Subprime continues to be a problem. With interest rates so low I don't understand why any borrower would have a option adjustable-rate mortgage. Any group that is underwater are homeowners that used their homes as 'piggy-banks' and took out substantial home equity loans. The sector that I see hurting is mixed use commercial with a storefront and couple of apartments on top. Office parks seem to be doing well.
Bogart: That sector is pretty wierd. Commercial real estate mostly ignores it. Properties of that type are primarily and traditionally handled by the residential market or marginal players in the commercial market. I've never seen it aggregated nor have I ever seen reports on occupancy/vacancy/valuations in that market. I'm sure there are a lot of such properties throughout the NY metro region. Maybe there are aggregated statistics on it generated from the area. Its definitely not a topic that gets national following.