Long and Short Term Ramifications….
by Tom on March 4, 2009
in Education, house prices
The trend in this report is troubling both in terms of short term and long term ramifications:
Short term – 20% of the people who have a mortgage are underwater on their house. That means that 20% of the people who might potentially be buyers of a new home aren’t going to be able to buy a new home. I’ve heard it said that the average life of a mortgage is 7 years. If you take that to mean that on average homeowners move every 7 years (and I know that’s not the whole picture) then that means we’ve got about 3% less people per year who would move but can’t due to negative equity. That 3% calculates to about 145,000 sales according to existing home sales for 2008. So we’ve got about 145,000 home owners who can’t buy a new house even if they want to. Add to that the people who won’t buy a new house because they are concerned about their jobs, and it doesn’t bode well for the housing market.
Long term – If people see that they are under water and don’t see a reversal of that trend, are they going to continue to pay on the house or are they going to just walk away and start over? Where do the morals of our country’s homeowners stand in terms of the obligations they signed up for? Is a foreclosure going to have the “moral stigma” 5 years from now that it did 5 years ago? What does that mean for the housing market?
It’s going to be an interesting “ride.”
Stay tuned.
Tom Vanderwell
Report: 20% of Home Mortgages Were Underwater in December – WSJ.com
Twenty percent of all U.S. residential properties that had a mortgage on them were underwater at the end of December, with mortgage debt greater than what the homes were worth, according to a report released Wednesday by First American CoreLogic.That’s more than 8.3 million mortgages that were upside down at the end of the year, compared with 7.6 million three months earlier. It’s a problem that is expected to get worse as home prices continue to fall.
