Zillow 286 of Homeowners With Mortgages Underwater | Mortgage Rates & Trends: Mortgage Blog

Zillow 286 of Homeowners With Mortgages Underwater | Mortgage Rates & Trends: Mortgage Blog

Zillow Chief Economist Dr. Stan Humphries commented:

“While we still have a ways to go in terms of home value depreciation, the pace at which home values are falling has declined considerably during the course of the year. This slower pace signals that a stabilization is on the horizon”.

That home prices continue to fall means that the number of homeowners who are underwater will likely continue to increase. Home prices are still falling due to to a fundamental imbalance in supply and demand. There is a lack of demand for homes as a result of unemployment, consumer uncertainty, tight credit, and lack of household formation. At the same time there is a glut of unsold homes (on the market and off the market) because of foreclosure and lack of home sales.

In Phoenix, Atlanta, Tampa, and Sacramento more than 50% of all mortgaged homes are underwater. Miami, Cleveland, Chicago, and Denver all have underwater rates of over 38%. If nothing is done, it will be years, if not decades, before these markets recover.

There is more than $700 billion of negative equity in the housing market. This negative equity makes it exceedingly difficult for the housing market, and thus the U.S. economy to recover. Negative equity keeps people from selling their homes, from moving to find a new job, and from spending money. Georgetown Law Professor Adam Levitin has an excellent post that details the problems that this huge amount of negative equity is causing. The Professor says that any housing plan that doesn’t do something to address this problem is woefully inadequate. I agree with him 100%. Current housing policy has done a horrific job in solving the problems that are bogging down the housing market.

At some point or another, I suspect policy-makers will realize that one way or another, principal write-downs are necessary to heal the housing market. Whether this comes through bankruptcy reform or in some alternate way, it is going to have to happen.