Don’t Hold Your Breath for that Housing Boom

Here’s why your housing ship still hasn’t come in -- too many homeowners are still underwater.

It’s true, and more than six years after the real estate and financial meltdown, it’s remarkable. Yet 15% of homeowners are in just that kind of pickle -- owing more on their mortgage than their home is worth. And we’re talking “a lot more” than their home is worth.

As the folks at RealtyTrac report, some 8.1 million properties have a market value that’s at least 25% “less” than the mortgage attached to them. Put another way -- the homeowner owes at least 25% “more” than that property is worth. Put still another way -- that’s not just underwater, that’s Titanic-on-the-ocean floor underwater!

Not surprisingly, most of these underwater homes were purchased right before the housing bubble burst. For example, 40% of homes bought back in 2006 are still worth less than the mortgages on them, 35% of purchases made in 2007.

Back then real estate was flying high. But as both new and existing home prices started declining, and then tumbling, the problems started spreading. And as Catey Hill details in MarketWatch, so too the broad swath of homeowners suddenly seriously upside down on their loans – owing substantially more than their homes were worth. And “are” worth.

Consider that fact that even now, RealtyTrac figures 55% of mortgaged properties valued at less than $50,000 are underwater; 34% of properties valued at $50,000-$100,000; 17% of those homes valued at $100,000-$200,000; all the way up the real estate food chain, to 6% of properties valued between $1 million and $2 million, and 9% of properties worth $2 million to $5 million.

Now, back to what all this means -- with so many still so upside down on their loans, they can do little more than continue to wait this out, and hope things even out and soon. After all, you can’t shop for a home if the one you’re in still has you in the red. And with so many, particularly in the lower-end in this predicament, move-up buyers are virtually non-existent. Remember as well, if those folks in the lower-end can’t get “out” of their homes, first-time buyers can’t get “in” to those homes.

That’s why supply is so tight on the lower end, and as a result, compounding troubles for all ends. Consider that nearly one in three mortgaged properties in Nevada are underwater, making for slim home-pickings there.

But again, not just there. In all the once hot real estate markets, it’s the same cold reality. Nearly one in four Florida homeowners face the same dilemma, as do one in four Michigan homeowners, and about one in three Illinois homeowners. As Catey Hill crunches for MarketWatch, that works out to eight U.S. states “in which one in five mortgaged properties is still seriously underwater.”

Short of just going bankrupt or forcing a short sale, those homeowners can’t go anywhere, and even with record low interest rates, they can’t really benefit refinancing the debt they have, because that damning ratio remains pretty much the same. So they sit tight -- and the housing industry just -- well -- sits.

So forget what realtors say about the housing environment never being better. Home prices remain attractive and those rates remain even more so. But you can’t buy when you can’t budge, and a lot of folks ain’t budging. So is it any wonder, a lot of folks…ain’t buying.