Figures recently released indicate that over 23% of homes financed with mortgages in the U.S. are upside down, meaning that the owner owes more on the mortgage loan than the property is worth. In most times this number is in the 5% range.
This figure, recently released for the 4th quarter of 2010, represents an increase of about 1% from the previous quarter. One contributing factor is that the average prices of homes being sold continues to decline, as it has been doing for the past 4-5 months or so. In addition, it is predicted that this trend will continue throughout 2011. Another 5% drop is expected by many real estate experts, so even more homeowners are likely to be on this dubious list in the coming year.
In the hardest hit states, the situation is worse. Nevada finds itself with about two thirds of all homes with mortgage loans being upside down. In Arizona, Michigan, Florida and parts of California the figures are in the 50% range. In many cities in these states home prices have gone down by over half since the peak in prices a few years ago.
What are the choices for people who find themselves in this situation? They can just remain in the house and wait for home prices to go up, assuming they are employed and can still make monthly payments. Of course it might take years to recover any meaningful equity. If they need to sell and move somewhere else, they are facing some difficult choices. They might be able to convince their lender to offer a short sale, where the lender takes the loss. But the chances of that are low if the lender knows the homeowner is employed and can still make payments. If a move is absolutely mandatory, the homeowner might need to somehow come up with the difference themselves in cash at closing.
Some homeowners who bought houses at the peak of the boom and who are now substantially under water are employing another approach. This has been called strategic default. Homeowners in this case are stopping making payments and letting their property go into default, even though they are employed and can afford to make their monthly payments. They take a big hit on their credit rating, but they get out from under a huge debt. Some, according to this author's sister, a real estate agent in Phoenix, Arizona, are even getting pre-qualified for another mortgage on another home, and will default subsequent to doing that. They thus are in another house and their bad credit has not affected their ability to get into that home. Of course the mortgage holder then must take the loss on the original property.
This figure, recently released for the 4th quarter of 2010, represents an increase of about 1% from the previous quarter. One contributing factor is that the average prices of homes being sold continues to decline, as it has been doing for the past 4-5 months or so. In addition, it is predicted that this trend will continue throughout 2011. Another 5% drop is expected by many real estate experts, so even more homeowners are likely to be on this dubious list in the coming year.
In the hardest hit states, the situation is worse. Nevada finds itself with about two thirds of all homes with mortgage loans being upside down. In Arizona, Michigan, Florida and parts of California the figures are in the 50% range. In many cities in these states home prices have gone down by over half since the peak in prices a few years ago.
What are the choices for people who find themselves in this situation? They can just remain in the house and wait for home prices to go up, assuming they are employed and can still make monthly payments. Of course it might take years to recover any meaningful equity. If they need to sell and move somewhere else, they are facing some difficult choices. They might be able to convince their lender to offer a short sale, where the lender takes the loss. But the chances of that are low if the lender knows the homeowner is employed and can still make payments. If a move is absolutely mandatory, the homeowner might need to somehow come up with the difference themselves in cash at closing.
Some homeowners who bought houses at the peak of the boom and who are now substantially under water are employing another approach. This has been called strategic default. Homeowners in this case are stopping making payments and letting their property go into default, even though they are employed and can afford to make their monthly payments. They take a big hit on their credit rating, but they get out from under a huge debt. Some, according to this author's sister, a real estate agent in Phoenix, Arizona, are even getting pre-qualified for another mortgage on another home, and will default subsequent to doing that. They thus are in another house and their bad credit has not affected their ability to get into that home. Of course the mortgage holder then must take the loss on the original property.
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