According to
Black Knight Financial, both new and repeat foreclosures hit a 12-month high
during the first month of the year with repeats (i.e. the borrower was rescued
but has since entered the foreclosure process again) jumping 11% M/M. More
troubling is the trend in repeat foreclosures which accounted for only 15% of
total foreclosures during the crisis but now make up a startling 51%.
Now, a new report from Zillow seems to offer further evidence that the US
housing market may not be the picture of health after all (as if we needed more
proof after housing starts cratered 17% in February). The percentage of homeowners underwater in the US was flat from Q3 to Q4
which doesn’t sound all that terrible until you consider that this figure had
fallen for 10 consecutive quarters. Things look particularly bad in Florida and
the midwest where Zillow notes more than 25% of borrowers are sitting in a
negative equity position. Here’s more:
In the fourth quarter of 2014, the U.S. negative
equity rate – the percentage of all homeowners with a mortgage that are
underwater, owing more on their home than it is worth – stood at 16.9 percent,
unchanged from the third quarter. Negative equity had fallen
quarter-over-quarter for ten straight quarters, or two-and-a-half years, prior
to flattening out between Q3 and Q4 of last year…
More than a
quarter of mortgaged homes are underwater in some markets in Florida and the
Midwest…
Zillow goes on to note that we have
entered a new era in the US housing market: the era of the underwater
homeowner. Even better, the report goes on to note that in a number of cases,
borrowers will likely be “in negative equity forever” :...this represents a major
turning point in the housing market. The days in which rapid and fairly uniform
home value appreciation contributed to steep drops in negative equity are
behind us, and a new normal has arrived. Negative equity, while it may still
fall in fits and spurts, is decidedly here to stay, and will impact the market
for years to come.
In fact, some homeowners trapped very deeply underwater may essentially
be in negative equity forever. And those homeowners are much
more likely to own America’s least expensive homes. Making matters worse, many
homeowners in the bottom home value tiers are not only underwater, but very far
underwater. Consider, for example, homeowners of the least expensive homes in
the Detroit metro area. These homeowners are 29 times more likely to owe twice
as much than their house is worth compared to a homeowner at the high end of
the market.
The good news (and this seems to synch
with what we saw in the latest UMich Consumer Sentiment print), is that rich
people are doing ok:
Negative equity is not
an equal-opportunity predator, and looms larger over less expensive homes. Nationwide,
27.3 percent of homeowners with a mortgage in the bottom one-third of homes by
value were underwater in the fourth quarter. The negative equity rate among
top-tier homeowners was 9.1 percent. In some areas, this gap was even more
distinct. In Atlanta, for example, 49 percent of homes in the bottom-third of
home values are in negative equity, compared to 11 percent of mortgaged homes
in the highest-valued third.
Now it’s starting to make sense to us
why we were having trouble understanding the notion that a “recovery” was well
underway in the US. It’s because we
didn’t understand that a recovery was usually characterized by an epochal shift
towards deeply underwater homeowners and where negative equity becomes a
permanent fixture in the market.
Comments
The economic fundamentals are not good. Wages are still
depressed and government debt and overspending continues to sap our economy. We
need to get out of debt and not pay too much for our homes.
The real answer for homeowners is to pay off the mortgage
as soon as possible, if you want to ever live in your own house. Do whatever it
takes, work two jobs, drive old used cars and don’t splurge on non-essentials.
Norb Leahy, Dunwoody GA Tea Party Leader
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