Monday, August 25, 2008

60 Percent Of 2006 Western Homebuyers Now Underwater

San Ramon House2006 marked the peak of the housing market, and those who bought a home in 2006 likely owe more on the home than it is worth. According to a report issued by Zillow, 45 percent of all 2006 homebuyers are underwater, and almost 60 percent 2006 homebuyers in the West are upside down in their mortgages. The Western region of the U.S. has been hit the hardest, followed by the South, Midwest and Northeast. Of all the homes across the country--not just 2006--13.9 percent now have negative equity. The West leads with 18.2 percent of their homes having negative equity. The scary thing is that these numbers are expected to rise.

Zillow’s report predicts the peak for the percentage of homes with negative equity will be sometime around quarter two of 2009. According to their projections, the country will peak at around 16 percent. In the West, they foresee the peak at around 25 percent. This is an incredible number to think about. This would mean that one in four homeowners, regardless of when they bought their home or how much they put down, would be upside down on their home. This is obviously going to have a dramatic impact on people’s perceptions of their financial well-being. That will lead to lower spending, increasing the pressure on our economy, as well as more foreclosures as people cut bait and walk away.

On a positive note, existing home sales rose in July, exceeding expectations, but inventories grew and prices continued to drop, according to the Wall Street Journal. So the positive is that demand for homes is starting to return somewhat, but with more homes entering the market, that demand is not going to be enough to raise prices.

I think that the new housing bill, with its homebuyer tax credit and other aids, will help the market rebound, but it isn’t going to be enough to right this ship. This correction still has some fuel in its tank. There are also a few potential catalysts that could add more fuel to the fire, such as a Freddie and Fannie rescue/collapse and a possible recession with large job loss. If either of these things were to happen, not only would the predictions of a 2009 housing market bottom fall short, they could fall short by years.

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