The Recession Won’t Be Over Until Home Owners are No Longer Upside Down
Some believe the recession is over, and we are in recovery. Others say we still haven’t seen the end of it.
I do not have an economics degree, but it seems to me that this recession will not truly be over until the American home owner is comfortable in their own home.
The American Dream of owning a home, has become a nightmare to millions of Americans in the last few years. Instead of being a point of pride and comfort, owning a home has become a point of stress and contention for so many.
By the numbers*:
- 2.8 million foreclosure filings in 2009
- up 21% from 2008
- up 120% from 2007
- 300,000 homes per month are being lost to foreclosure
- 4.5% of homes in U.S. in foreclosure – 4th Quarter 2009
- 10.44% of homes in default (30+ days late) – 4th Quarter 2009
- 15.02% of U.S. homes in foreclosure or default
It is estimated that 50% of the defaults in the country are strategic. This means that people who could pay their mortgage are choosing not to pay their mortgage.
Why would anybody do this? In Orange County, CA, we lost 40% of median value in the last few years. If an owner had purchase a $1,000,000 with a loan of $800,000, that home might now be worth $600,000 with a loan of nearly $800,000. Additionally, that same home might have increased to $1,500,000 with a home equity line of credit for an additonal $200,000. Now, the owner is looking at mortgages in the amount of $1,000,000 with a value of $600,000.
Some people are looking at this and making the decision to walk away, even if it results in foreclosure.
At a time when few loan modifications are being finalized, homeowners are frustrated and making decisions that do not aid the real estate market.
It is estimated that approximately 25% of all Americans are upside down in their homes, meaning they owe more than it is worth.
With many Americans believing that their wealth is tied up in their home, this means that many are spending less money because they fell strapped and uncomfortable with their financial situation.
If the economy is driven by consumerism, and Americans who are upside down or in fear of becoming upside down, then the economy will continue to falter.
Thus, my contention that until Americans owe no more on the mortgage than the value of their home, they will continue to watch their spending, inhibiting the recovery of our economy.
What are your thoughts? Can the recession really be over before American are at least even in their homes?
* Per Realty Trac