Bloomberg is reporting that the number of homes in the United States that are “underwater,” that is, worth less than the amount owed on them is decreasing slightly.
For the quarter ending September 30th, 22.5% of the homes with mortgages have negative equity. In the prior quarter, that figure was 23%.
But what is causing the drop? There are two ways it can happen: first, home prices could be rising generally.
That isn’t happening.
Instead, the increase in the foreclosure rate is probably behind the drop, because every time a foreclosure sale gets completed, an underwater mortgage (or two, or three) gets wiped out.
A further decline in prices threatens to increase the number of homeowners with negative equity, economist Mark Fleming told Bloomberg News. US home values will probably drop $1.7 trillion this year after rising foreclosures and the expiration of buyer tax credits that boosted demand early in the year, Zillow Inc. said Dec. 9. More than $1 trillion of the drop came in the second half, according to Zillow, a Seattle-based real estate data company.
If Congress wanted to reduce the number of underwater houses, it could do so without the attrition and disruption caused by foreclosures. They could amend the bankruptcy code to allow bankruptcy courts to modify loans as part of the Chapter 13 process. But the effort to re-write the bankruptcy code in this manner is stalled at the moment.
Locally, in the Lawrence, Methuen and Haverhill areas, our situation pretty much mirrors the national numbers. Prices for real estate isn’t really going up any, and reductions, if any, in the number of troublesome mortgages are coming through the foreclosure process rather than the bankruptcy courts.
By Doug Beaton