By Mark Huffman
ConsumerAffairs.com
August 7, 2009
Lately there have been encouraging signs in the housing market,
with rising sales of new and existing homes. But Deutsche Bank has
released a sobering analysis, suggesting homeowners are not out of the
woods just yet.
According to the bank's real estate analysts, about 25 million homeowners will owe more on a mortgage than their home is worth by the first quarter of 2011. In short, nearly half of mortgage holders will be "under water" within the next 18 months.
The problem is falling property values. Millions of home buyers over the last four years not only paid inflated prices for their homes, they put little or no money down. As property values fall, the mortgage balances exceed the new market value of the property.
Gone are the days when consumers could use their homes as ATMs, taking out cash in home equity loans.
"For many, the home has morphed from piggy bank to albatross," said analysts Karen Weaver and Ying Shen in their report.
The analysts predict a bad situation in the housing market is going to get a lot worse. For example, an estimated 14 million homeowners were underwater on their mortgages at the end of the first quarter. Weaver and Shen say that number isn't going to shrink, as you might expect in an improving market, but almost double in less than two years.
When a homeowner is in a negative equity situation, it means they can't sell their home, unless they have enough cash to make up the difference between what they can get for the house and what they owe the mortgage company. If they are unable to sell their home, the danger of losing it to foreclosure is much greater.
Refinancing is not an option, since the house is worth less than the mortgage payoff. The only hope is a mortgage modification, but so far government and industry efforts have produced few modified loans. Many homeowners have complained of inept mortgage servicers who have made the process difficult and frustrating.
If more homes slide into foreclosure, it would drag home prices still lower. As home prices fall, more homeowners - even those who put 10 to 20 percent down - might also be underwater. The vicious cycle could have devastating consequences, economists say.
Reducing the number of foreclosures is seen as a key step in restoring stability to the housing market, but so far they continue unabated. The foreclosure crisis could get worse if unemployment continues to rise. As more and more homeowners lose their jobs, they become more vulnerable to losing their homes.
