Zillow.com just released data for the first three months of 2009 showing that nationwide 20% of homeowners owe more on their mortgage than their house is worth.
While those numbers sound horrific, they are nothing compared to what has happened in Sonoma County over the last 5 years.
Taking a look at the Zillow data for the Santa Rosa-Petaluma MSA, we find that 59.6% of mortgages for homes purchased from 2004-2009 have negative equity. Let that sink in... SIXTY PERCENT.
It that is not enough, for homes sold in 2005 and 2006 more than 70% are worth less than the debt owed on the home. Again, let that sink in... SEVENTY PERCENT.
Unless homes drastically begin increasing in value in short order (which they won't), many of these people will simply walk away these mortgages. It's little wonder the banks are in the mess they find themselves.
Finally, here is a map from Zillow showing negative equity for our area:
Our MSA had the second largest percentage of exotic loans of any MSA in the USA.Now we see the consequences.
ReplyDeleteExactly right. And it's just beginning. The Fed forcing down rates is helping to keep many in their homes in the short-term. But all of these people with negative equity will have very little incentive to stay in their homes when rates head back up.
ReplyDeleteHHB I spoke to a friend today who thinks we will see rates correct in 4 months or so.I know,as you do,that the current rates do not come close to compensating for the risk involved.How long do you think it can last? Can you give a wild assed guess? Things are to fluid for a Scientific WAG,but I am curious about your opinion.
ReplyDeleteMy guess is as good as yours. Really hard to put a time frame on it. It could be next month, it could be 2 years. But just like you point out current rates don't compensate the risk involved so we know which way they are headed.
ReplyDeleteIt should be noted that in late March when the Fed announced it was going to start buying long-term treasuries, the yield on the 10-year immediately dropped to 2.50%. As I write this it is at 3.21%. That's a sign they are already losing control.
Thanks.Lots of short term debt rolls over in the next few months so I think sooner rather than later.But don't bet the farm on it unless you are already underwater...
ReplyDeleteHow do 16% of the homes bought this year already have negative equity?
ReplyDeleteAnon 131,Zero down or 3% down fha loans that closed in January?
ReplyDeleteFHA loans w/ 3.5% down I believe is the answer. This is one of many time-bombs on the horizon. Borrowers can finance closing costs in these loans meaning starting equity is close to zero.
ReplyDeleteNo bank in their right mind would make these kinds of loans in a declining real estate market... hence the FHA has stepped into fill the void. The real estate market is marginally propped up, real estate agents get to keep collecting their 6%, and taxpayers own the downside.
Government insured FHA loans have gone from 2% of the market in 2006 to about 30% today. Defaults are hitting all time highs and private analysts expect up to a $100 billion bailout.
The only plus is that once taxpayers realize what they are on the hook for these low down payment loans will go the way of the dodo bird.
At that point down payments will return to 10-20% to buy a home. Even $300,000 homes start looking very expensive when you need to put down $60,000 upfront.
$300,000 homes ARE very expensive in relation to incomes.
ReplyDelete"The only plus is that once taxpayers realize what they are on the hook for these low down payment loans will go the way of the dodo bird."
ReplyDeleteOne would hope so, but I think the Feds realize that without these low down payment mortgages, the RE market would be dead in the water in five minutes flat. Hardly anyone has a 10% down payment saved, let alone 20%. Saving years for a down payment isn't how the instant gratification crowd expects to live, unfortunately.
And I do think if you finance with a 3.5% down payment, you have to qualify based on debt to income ratios for the 96.5% of the house you are financing, which of course most people won't be able to do.