Over 50% of U.S. Homeowners are still underwater

November 14, 2011 by · Leave a Comment
Filed under: Real Estate News 

Let’s just say it, principle write-down is the only way forward for a housing recovery.  The amount of the loans are just not in-line with what the houses are worth.  We are going to continue to see more foreclosures and REOs as long as we keep these mortgages at such a high book value.  The main opposition to reducing principle, is that many banks will be forced to take write-downs and that would means the banks would need to raise capital.  Some of these financial institutions, might not be able to raise the amount of capital needed.  In that scenario, they would need to be either broken up or fail.

That is the reason why the most logical choice is the least attractive political option.  We need to learn that the pain is usually the first step in a recovery and the longer you put it off the more pain that accumulates.  The refinance programs can work if you think house prices are near stable levels and your mortgage was written near this level.  If not, who cares if you have a 1% mortgage on a house over-priced by 50%?  This is the path forward and when you start hearing the drumbeat for this course of action, then you know at least this problem is finally being tackled in a sustainable manner.

CNBC (Diana Olick) – Home prices are highly seasonal, due to the different mix of homes that sell at different times of the year, but the latest reading for September shows home prices are under added pressure now; this is not just due to the high concentration of distressed properties on the market.

Prices fell 1.1% month to month, according to CoreLogic, both in seasonally adjusted and unadjusted terms. This is the second consecutive month of monthly drops, as we head into the slower fall season.

The more concerning aspect of the report is that while home prices including foreclosures and short sales fell 4.1 percent from September of 2010, they still fell 1.1 percent when you exclude distressed sales.  That has not been the case in previous months.  “The acceleration in the rate at which the CoreLogic house price index is falling reflects the slowing in the pace of job creation and wider economic growth earlier this year,” says Paul Diggle of Capital Economics.

While the unemployment picture has weighed heavily on home prices all year, the new uptick in foreclosure starts will likely have a more drastic effect. Foreclosure start rates on severely delinquent loans have increased to over 10 percent a month in the private-label RMBS (residential mortgage backed securities) sector, according to Fitch, which is now estimating another 10 percent decline in home prices before they fully stabilize.

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