Despite Stabilizing Housing Market, Underwater Mortgages Pose Big Threat
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Despite yesterday's better-than-expected October existing home sales, which showed a rise of 10.1%, and news today on the CaseShiller Home Price index showing continued improvement, the Wall Street Journal is highlighting some alarming stats on underwater mortgages.
According to the report, the number of mortgages that are underwater, meaning the borrower owes more on the loan than the house is worth, is now an astonishing 23%. Real-estate information company First American CoreLogic said nearly 10.7 million households had negative equity in their homes in the third quarter. Home prices have fallen so far that 5.3 million U.S. households are tied to mortgages that are at least 20% higher than their home's value. More than 520,000 of these borrowers have received a notice of default.
While these fact are pretty alarming, most U.S. homeowners still have some equity, and nearly 24 million owner-occupied homes don't have any mortgage.
But negative equity "is an outstanding risk hanging over the mortgage market," said Mark Fleming, chief economist of First American Core Logic.
Mortgage troubles are not limited to the unemployed. About 588,000 borrowers defaulted on mortgages last year even though they could afford to pay -- more than double the number in 2007, according to a study by Experian and consulting firm Oliver Wyman.
So while there are clearly signs that the housing market is stabilizing, if prices don't recover soon more and more borrowers will decide it is a better option to walk away from the house.
Link to WSJ Article
Related ETFs:
SPDR S&P Homebuilders (NYSE: XHB)
Financial Select Sector SPDR (NYSE: XLF)
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