Underwater Mortgages, The Next Bubble
25% of home owners are underwater, meaning that the price of their mortgage is higher than the current market value of their houses. With the tightening of long-term money (30-year loans) this number will rise. To what level? I don’t know. But understand the trajectory and the trend so that you can prepare yourself.
“Jingle Mail” is becoming ever more popular. However, be careful with that as well. Strategically walking away from your mortgage is becoming very common. Because of this, states will be passing laws (with retroactive powers) that allow banks to sue and the courts to place judgments on people who simply walk away from their mortgages.
One in Four Borrowers Is Underwater
By RUTH SIMON and JAMES R. HAGERTY
The proportion of U.S. homeowners who owe more on their mortgages than the properties are worth has swelled to about 23%, threatening prospects for a sustained housing recovery.
Nearly 10.7 million households had negative equity in their homes in the third quarter, according to First American CoreLogic, a real-estate information company based in Santa Ana, Calif.
These so-called underwater mortgages pose a roadblock to a housing recovery because the properties are more likely to fall into bank foreclosure and get dumped into an already saturated market. Economists from J.P. Morgan Chase & Co. said Monday they didn’t expect U.S. home prices to hit bottom until early 2011, citing the prospect of oversupply.
Home prices have fallen so far that 5.3 million U.S. households are tied to mortgages that are at least 20% higher than their home’s value, the First American report said. More than 520,000 of these borrowers have received a notice of default, according to First American.
Most U.S. homeowners still have some equity, and nearly 24 million owner-occupied homes don’t have any mortgage, according to the Census Bureau.
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I wonder if Canada is not on the same path, even though there has been no bubble burst to date.
Financial God recently posted..The Bank of Canada Stays Put on Low Interest Rates