02 December 2009
Posted by Paul Anater at 6:08 AM
According to a Wall Street Journal article from last week, 23 percent of US homeowners owe more on their homes than they are worth. That's nearly one in four, and by any measure it doesn't bode well.
Those figures reflect the 10.7 million US households that had negative equity in their homes in the third quarter of 2009. Fully half of those households, 5.3 million households have negative equity of at least 20 percent. Further, 520,000 of those borrowers are in default officially. Those numbers were compiled by First American Core Logic, a real estate information company in Santa Ana, CA.
I ran an article on Monday that was a reprint from the St. Petersburg Times and the article discussed what's becoming known as a strategic default on a negative equity mortgage. People are beginning to walk away from these so-called bad mortgages on purpose. These are not isolated instances either. According to a study conducted last year by Experian and the consulting firm Oliver Wyman; 588,000 borrowers who could afford to pay their mortgages walked away in 2008.
The US has exported its major manufacturing capabilities over the course of the last 30 years and such manufacturing as still exists, exists to serve the housing industry. That's a gross simplification of course, but it's not untrue either. So if housing is the new bedrock of our economy, how can all of this negative equity and a loosening stigma against default be anything but a bad thing?
My post on Monday spurred a really interesting series of comments, it's had me musing about ethics and morals ever since. I still maintain that the mortgage crisis, the financial meltdown and all of signs and symbols of the current recession are symptoms of a deeper problem. Such fixes as have been proposed and implemented seem to be slowing the slide into something truly horrific, but I don't think they're addressing any root causes. Chasing short term gains is what let to the current mess and throwing short term fixes at it is just paving the way for the next bubble.
So again, am I out to lunch with all of this? Is the mortgage meltdown an isolated event? I'm not in a negative equity situation mercifully but I know a lot of people are. If you are you have my sympathies and I'd love to hear what that's like. I mean that genuinely. It's easy for me to wring my hands over strategic defaults because it's not something I have to entertain. What's it like to walk in those shoes I wonder.