End of an Era

The following headline clearly reveals the dangerous and deadly effects of the exploding RE “Bubble” that is still now in the process of wiping out the equity positions of most American homeowners.  The full extent of this disaster is completely lost on the vast majority of Americans.  They simply cannot comprehend that the home values of just three or four years ago are gone forever and for ever!

"REPORT - Over 50% Of U.S. Homeowners Are Underwater"

This was the headline for a lengthy article on November 9, 2011 by CNBC's Diana Olick.  Among other things she pointed out that:

“…A new report on still falling home prices today highlights the fact that the lower those prices go, the more American borrowers fall into an negative equity position; that is, they owe more on their mortgages than their homes are worth. Many of those borrowers are already behind on their mortgage payments, and some are likely already in the foreclosure process. …

While 14.6 million might seem like a lot, it's not the real number when you consider negative equity in housing's recovery. That's because it doesn't factor in "effective" negative equity, which is borrowers who have so little equity in their homes that they cannot afford to move.

Consider the following from mortgage analyst Mark Hanson:

On US totals, if you figure average house prices use conforming loan balances, then a repeat buyer has to have roughly 10 percent down to buy in addition to the 6 percent Realtor fee to sell. Thus, the effective negative equity target would be 85%. You also have to factor in secondary financing, which most measures leave out.

Based on that, over 50 percent of all mortgaged households in the US are effectively underwater — unable to sell for enough to pay a Realtor and put a down payment on a new purchase without coming out of pocket. Because repeat buyers have always carried the market as the foundation, this is why demand has not come back. It's as if half the potential buyers in America died over a two-year period of time….”