1 in 3 L.A. County home mortgages is underwater.
http://www.latimes.com/business/real...0,985482.storyNearly 1 in 3 homeowners with a mortgage in L.A. County owes more than the property is worth, new data show. These underwater loans hinder mobility and hurt prices because they tend to stymie the important move-up market.
Even as a tentative housing recovery in the Southland appears underway, a big stumbling block remains: the vast number of underwater homeowners.
Nearly 1 in 3 homeowners with a mortgage in Los Angeles County owes more on the loan than the property is worth, according to fresh data from real estate website Zillow. In the hard-hit Inland Empire, that climbs to more than half of borrowers.
In roughly 10% of Southern California cities, 1 of every 5 homeowners with a mortgage owes double the value of the house, according to the data, released Wednesday. As sales and prices improve, some economists expect homeowners who have been stuck in underwater properties to try to sell their homes, muting any significant price appreciation.
"Generally I think we are seeing strong signs of an emerging recovery in the housing market — in 2012 we are going to see strong sales growth," Zillow Chief Economist Stan Humphries said. But "generally our thesis is that the bottom is going to be a pretty long and rocky affair, and people shouldn't expect a V-shaped recovery. And we are not going back to the go-go years."
Underwater homeowners in Los Angeles, Orange, Riverside, San Bernardino, Ventura and San Diego counties were a staggering $138.9 billion deep in negative equity at the end of the first quarter, Zillow reported. Nationally, underwater borrowers owe about $1.2 trillion more than what those properties are worth, Zillow estimates
Some scary stats....
I think that the "underwater" part of it is overstated as its irrelevent unless the property is for sale. For example every new car purchased is "underwater" the second it's driven off the lot. IMO I think the pices will come down even more. When you look at historical averages of income to home price ratios they are still too high.
It isn't underwater if it was payed for rather than leased, or, if you put a down payment on it that is greater than the depreciation and the interest on the number of months you need to pay until your equity payment is greater than the continual depreciation.Originally Posted by Yeti2424
Owing more that it is worth? The only time when your home has value are:
1) when you buy it
a. re-finance it.
2) when it is appraised for property tax
3) when you sale it.
So unless a person needs to sale it or lost income it is not a issue.
Not at all. Your home can also have short term value in cases where you are paying less then you would be if you were renting. By extension, an underwater mortgage is generally a big issue each month as the tenant is probably making higher payments than they could have if they were renting. Also, 2) should be taken with a massive grain of salt.
Your 1a can be really useful right now. Many mortgage rates are less than can be made in other investments.
Lot of IF, If the rental is comparable to the person's home. Most people will choose a home to buy differently then they would choosing a rental. I would say, talk to your banker. If the person's income has not dropped, they are in the same position as when they bought the home in regards to ability to pay.
Also rentals are 100% NO equity build up. Even a home that dropped from 400 K to 200 K still has retained equity or the potential of retained equity. A renter gets none of that.
Tax wise, property tax on a rental can not be deducted on the person's tax
Interest paid can not be deducted on the person's tax either.
So after talking to your banker, talk to your tax consultant.
The people who mostly got screwed are those who where buying homes to turn them and those who had to sell.
I've heard different figures no the average number of times a person moves during their work life. I recall the range coming in somewhere around 7.
If someone is compelled to move....this will be an issue as they will be chained to a house with negative equity.
That's the big problem I see......is a considerable restriction in freedom of movement for homeowners, whether it be voluntary or involuntary movement, as during this rather extended period of negative equity a home becomes a shackle which reduces freedom rather than an asset for increasing freedom.
This is reason #291 why we will see QE#3 once we have substantial external justification( EU crisis is a big possibility, conflict could be another slim possibility).
If we see inflation of say up to 100% over a 5 or so year period we would eventually see a rise in home prices in nominal, if not real, numbers.
The way to attack this elephant and eat it one bite at a time would be a reduction in debt....chop the principals...but that will never happen when the folks who are owed the money own the government.
Inflation........it's the only way out for underwater homeowners as well as to reduce the real value of external/foreign debt.
Hollis & Flagg, thanks for shedding some light on the whole underwater house thing. Although I get the concept of paying more than the house is worth, I never got the big deal if the home owner could still pay the mortgage.
I agree that a major impact is on folks that have mobile careers - folks that may have to move in support or because of their jobs. I have seen a major change in relocation allowances/policies since the bubble burst, mainly because of the cost of home buyouts.
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