33% of Homeowners With Mortgages Are Underwater

33% of Homeowners With Mortgages Are Underwater

According to Zillow.com, nationwide, the number is 22%, up from 18% Q4 2008. In California, 32% percent of homes are worth less than what’s owed on them. If we are thinking about the bank stress test, then unencumbered homes — those owned free and clear without any mortgages — are not relevant to the discussion. As we noted over the weekend, if you look at only the subset of homes with mortgages, the numbers are much worse. Nationally, 22% of all homes are underwater, then consider the total of homes purchased with credit. Back out the mortgage-free homes, and we get 33% of all mortgaged homes are underwater. This is significant in terms of the results of the stress tests, and the banks ability to withstand further deterioration of their balance sheets. (For stress test purposes, homes without mortgages are not relevant) Here’s Bloomberg:

"A growing number of U.S. homeowners owe more than their properties are worth after prices extended their two-year decline in the first quarter, Zillow.com said. Almost 21.8 percent of all owners were underwater as of March 31, the Seattle-based real estate data service said in a report today. At the end of the fourth quarter, 17.6 percent of homeowners owed more than their original mortgage, while 14.3 percent had negative equity three months earlier. Property values dropped 14 percent from a year earlier in the first quarter, reducing the median value of all U.S. single- family homes, condominiums and cooperatives to $182,378, Zillow said. The gain in underwater homeowners will lead to more bank repossessions, the company said."

The recession cut home values by $2.4 trillion last year. In a separate survey of homeowner sentiment, 31 percent of homeowners said they would be at least "somewhat likely" to put their property up for sale in the next 12 months should they see signs of a recovery. This implies that any housing "recovery" will be about stabilization and stopping sales/price erosion — not about regaining higher prices anytime soon . . .