Monday, August 27, 2012

Negative Home Equity: More Foreclosures on the Way


Market Pulse The Arizona Republic p. D2 8/25/2012

"Approximately 52% of metro Phoenix homeowners have negative equity in their homes or are upside down... 55% of the region's homeowners owed more than their home was worth at the end of the first quarter"

Majia here: Foreclosures slowed down at the end of 2011 as an outcome of the robo-signing scandal. They are now expected to pick up. I expect so, considering this high level of upside down homeowners.

Fasten your seat belts.


1 comment:

  1. This is why the government is desperate to get inflation started again.

    As soon as the public realizes they are as far upside down on mortgages as they are, then they are going to default en masse and the banks will all be upside down at once.

    The problem is that the government idiots haven't done their homework.

    As of June 2008, there was a 19 year supply of housing in the US. That means if we didn't build or tear down a single additional housing unit, and population growth continued at the rate it was - then we wouldn't need any additional houses for 19 years.

    That's how much overbuilt we were. Of course all of those extra houses weren't evenly distributed according to the demand, but on average, that'w the way it was. We had something like a 5 year supply of brand new houses on hand.

    Since then the economy has contracted. Population growth has slowed; and people have begun to move in with one another, which has reduced the demand further.

    Offsetting this slightly is probably abandonment of some substandard housing units, but people don't seem to have the money to upgrade - instead many are trying to downgrade, so it hasn't been all that rapid - instead the new McMansions are languishing unsold and empty.

    So you have this - 4 years later we are just now using up the brand new houses - but all the builders are long-since bankrupt and it will take awhile to create the industry again. There is still a 10-15 year supply of existing housing available, so a builder isn't likely to make much profit for awhile.

    The way to fix it isn't to spike inflation - because there isn't likely a commensurate spike in income. The way to fix it would be to pull back the supply. Start condemning large tracts of unused houses. Make it more difficult to build new houses, by restricting building permits; creating larger land requirements, or eliminating certain tax incentives.

    Otherwise you better quickly start forcing banks to allow folks to bug out on part of their mortgage, or the system is definitely going to crash.

    James



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