Underwater Mortgages: When Your Home is a Costly Castle
November 6th, 2009 at 12:48 pm By Lee Egerstrom
Don’t let daily bounces in stock market index numbers and even occasional government statistics such as export sales convince you we’ve turned the corner on the recession. The housing market is still in serious trouble, and will remain so until employment and household incomes show real improvement.
Stephanie Armour, in a comprehensive report in Thursday’s USA Today newspaper, brings us back to earth with these statistics: About 588,000 people walked away from their homes and underwater mortgages last year – double the number of 2007. And now, 16 million American households have underwater mortgages, or roughtly a third of all households with first mortgages.
What’s more, Armour cites a Moody’s forecast that underwater mortgages will peak at 17.4 million mortgages, but not before the third quarter of 2010.
That is a credible forecast. Economics blogger Chris Mayer uses AgoraFinancial.com data on disposable income to show that household liabilities have only adjusted downward to 129 percent of disposable income – down from a peak of 138 percent in two years. For comparison, household liabilities were 101 percent of disposable income in 2000, and only 90 percent in 1991.
If anyone sees an easy fix to this debt problem, I’d like to hear what it is. Meanwhile, the housing market and by extension, housing debt and income, will keep a real economic recovery in check for many quarters ahead – if not years. And expect even more people to walk away from their homes and mortgages, concluding they really can’t afford a castle.
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How much money might the federal government have saved if it had paid off every troubled mortgage in the U.S. instead of blessing the big banks with billions of dollars that they are NOT using to lend to small borrowers?