A guest post from Constantine von Hoffman, veteran business journalist and author of the blog CollateralDamage.biz, a humorous look at marketing, business and his dog.
Under water is the industry term for homes with negative equity ? where more is owed on them than they are worth. You know the cliché about the iceberg and only seeing the tip of it because the rest is ? well you know where. Well, the cliché is sadly still true when it comes to the mortgage crisis. The US economy is likely to be further swamped by a wave of ?under water? mortgages (how?s that for a mixed metaphor?).
This condition currently effects nearly one sixth of U.S. homeowners and is very probably going to result in more foreclosures and bankruptcies.
Reuters reports ?about 12 million U.S. homeowners owe more than their homes are worth, compared with 6.6 million at the end of last year and slightly more than 3 million at the close of 2006.? Because so many people bought homes with little or nothing down when housing prices spiked, a huge number of people are now facing this situation. Nearly one in three homes purchased since 2003 have negative equity. The number is even more terrifying for those who bought after that, nearing 50% for people who purchased homes in 2006.
The argument used to be that buying was better than renting because you are building equity. A lot of people may do the math on their homes and realize that bankruptcy makes more financial sense than paying into something they will never see a return on. No one likes to declare bankruptcy and admit this kind of defeat, so it will not be an easy or happy decision for any of these folks. However, it may be the only choice they have.
Last 3 posts by Constantine von Hoffman
- Housing prices sink as underwater number rises - August 11th, 2009
- The home price increase that isn’t - July 28th, 2009
- Why the increase in housing starts means trouble - July 21st, 2009
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