Waterworld: 12 million American households are under water
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News item, from the Wall Street Journal: ‘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.’
Owing more than your home is worth is known as being ‘under water’ or ‘upside down.’
More:
About 75.5 million U.S. households own the homes they live in. After a housing slump that has pushed values down 30% in some areas, roughly 12 million households, or 16%, owe more than their homes are worth, according to Moody’s Economy.com. The comparable figures were roughly 4% under water in 2006 and 6% last year, says the firm’s chief economist, Mark Zandi, who adds that ‘it is very possible that there will ultimately be more homeowners under water in this period than any time in our history.’
The Journal reports that 39.9% of people who bought a home in Los Angeles in the past five years are under water.
Zillow, for what it’s worth, reports that, on average, those 12 million people who are under water owe about $58,000 more than their home is worth.That adds up to $676 billion of ‘negative equity,’ Zillow reports.
And that raises a question that Zillow’s top numbers cruncher, Stan Humphries, poses: If there is $676 billion in negative equity out there, how can John McCain’s mortgage purchasing plan cost only $300 billion? Humphries adds, regarding the McCain plan:
• It benefits those homeowners who assumed the most debt closest to the height of the real estate bubble.• It could create an incentive for more homeowners to default since they could then qualify for a reduced mortgage versus having to continue paying on an underwater mortgage.• It places the full burden of relief on taxpayers, but taxpayers get no potential upside.
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Photo: Flooding in Galveston, Texas, from Hurricane Ike, from Getty Images