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.
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.
5 comments:
The relentless slide in home prices has left nearly one in six U.S. homeowners owing more on a mortgage than the home is worth, raising the possibility of a rise in defaults — the very misfortune that touched off the credit crisis last year.
The result of homeowners being "underwater" is more pressure on an economy that is already in a downturn. No longer having equity in their homes makes people feel less rich and thus less inclined to shop at the mall.
And having more homeowners underwater is likely to mean more eventual foreclosures, because it is hard for borrowers in financial trouble to refinance or sell their homes and pay off their mortgage if their debt exceeds the home's value. A foreclosed home, in turn, tends to lower the value of other homes in its neighborhood.
As house prices continue to decline and more people find themselves paying mortgages above the value of their properties, the risk increases that they'll start walking away in droves.
@ TMullen
I differ from your point of view.
I think Homeowners who owe more than their homes' value are more likely to let the property fall into foreclosure. Negative equity is a big concern for lenders that are already seeing record home foreclosures across the country.
@ David
"Just because your house is worth less than your outstanding mortgage doesn't mean you're going to go into foreclosure or anything like that." First American chief economist Mark Fleming
Even for people awash in debt, homes are still places to live. If prices are given enough time to recover, they might still be a good investment too.
If what this story says is true we are heading for depression. The American consumer is what keeps this economy alive, and 50% owing more on a home than it is worth?, I can definitely see it because I know plenty of people who ATM'd the home, and quite a few of these newer owners, or even older owners who took money out, are paying more interest than principal. This kind of talk makes me want to sell my home right now and get what I can for it, then maybe buy again in a few years. I'm always concerned about living anywheres 20 miles out of a city because if oil every skyrocketed out of city values would drop while inner city values would in theory press upwards or hold well.
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