More Houses Underwater Means Tough Decisions for Homeowners

Amidst all of the political wrangling over the state of the economy, new data indicates that the housing market is still suffering, with nearly one in four homeowners underwater with their mortgage.

In its most recent Negative Equity report, Core Logic stated that nationwide, 22.8 percent of houses were in negative equity – that is, worth less than the amount owed on the mortgage – at the end of fourth quarter 2011. This figure was up from 22.1 percent of properties in negative equity the previous quarter.

In addition, another 2.5 million homeowners qualify as “near negative equity,” meaning they have less than five percent equity in their home, according to the report. Together, houses that are near-negative equity and those that are underwater represent 27.8% of homes nationwide, Core Logic reports.

The latest data indicates that housing values are continuing to fall, having already plummeted as much as 40-60 percent over five years in states like Nevada, Florida and Arizona. As the number of people who are underwater creeps up each quarter, homeowners looking to get out from under their mortgage are left with limited options. Those that want to sell either have to bring money to the table, short sell the house, or stick it out until the market turns around.

If you are upside-down in your house and choosing to stick it out, don’t assume that you will be right side up again when home values go back up in a few years. Odds are, you will be waiting much, much longer. The housing market bubble drove prices up so high, and they are coming back down so slowly, that we believe it will be 30 years before we see prices similar to what we saw in 2008. That means, if you bought a house in an average neighborhood at the peak of the market in 2008, you will not see the house sell for the same value until 2040.

Of course, homeowners often have an emotional attachment to their house. If you plan to stay in your house because you love it, the value doesn’t matter. You may want to discuss with your lender the possibility of refinancing at a lower interest rate to reduce your monthly mortgage payments. But, if you view your home as an investment and are concerned about its value, you might want to consider a short sale to get out from under your mortgage. Rather than wait for the market to come back up, letting your money languish in bad investment, you can cut your losses with a short sale and buy another home at a better value.

To complete a successful short sale, your realtor needs a detailed understanding of the process and extensive experience negotiating short sales with banks. If we can answer any questions about short sales or otherwise be of assistance, please give us a call.

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