FALLING HOME PRICES: Far More Harm Than Good?
FALLING HOME PRICES: Far More Harm Than Good?
DECLINING U.S. HOUSING MARKET LEAVES ROUGHLY 20% OF ALL HOMEOWNERS UNDER WATER!
If you were an optimist – in Chicago parlance not necessarily a Chicago Cubs fan – you might look at the nearly 19% decline in Median Chicago Home and Condo Prices since early 2008 as an incredible purchase opportunity. Prices here are lower than they have been for years – many find they can find incredible condo and single-family deals here in Chicago.
But not everyone can qualify for that new home. Loan Underwriting Standards have tightened considerably. Higher down payments are typically required. And if your FICO Credit Score is not top-drawer – well more fees and a higher interest rate likely for you!
If you have a home or condo to sell before you purchase your next home? Well that could be the real rub!
As reported in a Wall Street Journal Article by reporters Ruth Simon and James R. Haggerty one new study by the Automated Home Valuation Site Zillow.com estimates nearly 22% of all homeowners are under water – in other words their outstanding mortgage balance exceeds their current market value. Although this figure might be a bit overstated as Zillow only takes the borrower’s original mortgage balance into consideration and calculates the full value of any Home Equity Lines of Credit taken out using the home as collateral whether or not they have been fully drawn against it still paints quite a scary picture.
Those hoping to "trade up" to a newer larger home are often stopped dead in their tracks by prices lower than what they owe on their current principal residence. Even those with positive equity in their homes find the market has brought down the available equity they can draw toward that new home purchase – often by a considerable amount.
Current home not sold = new home not purchased.
Those underwater will also have a difficult time refinancing their current loan as well. Despite recent government initiatives only a small percentage of homeowners hold the necessary-to-qualify Fannie Mae or Freddie Mac based home loan. Even fewer fall within the maximum 105% loan to value threshold for their homes to qualify for a special government-sponsored re-fi.
Zillow estimates that 20.4 Million U.S. Homeowners were under water at the end of the First Quarter 2009 – up from 16.3 Million at the end of the Fourth Quarter last year. In terms of proportion 21.9% of all homeowners were under water at the end of last quarter versus 17.6% at the end of 2008 and 14.3% at the end of the Third Quarter 2008.
Some experts feel those homeowners the most under water are far more likely to walk away from their home as its value drops. According to research by First American CoreLogic more than 10% of all homeowners have a mortgage balance at least 110% of their home’s current market value.
Independent Housing Economist Thomas Lawler feels those homeowners less than 10% underwater are likely to wait out a market recovery while those with market-value-to-mortgage-balance deficits – some with 30% or greater negative equity – are more likely to simply walk away from their current home.
Indeed despite early signs of a Real Estate Market Recovery – in some Chicago Neighborhoods Market Times For-Sale Inventory and Median Prices have begun to improve in recent weeks – there are many indications that considerably more time and selling has to occur before real estate more substantially rebounds.
DEAN MOSS & DEAN’S TEAM CHICAGO
