More Homeowners Underwater
February 14, 2011
Home affordability returned to pre-bubble levels in a growing number of U.S. markets over the past year as price declines laid the groundwork for a housing recovery. But the bad news is that those price declines are leaving more borrowers underwater, or in homes worth less than the amount owed, says the Wall Street Journal.
- During the boom, lax lending and speculation pushed house-price inflation far beyond the modest rise in household income.
- Nationally, the ratio of home prices to annual household income reached a peak of 2.3 in late 2005.
- But by last September, it had fallen to 1.6, matching the lowest level in the 35 years the data have been collected and well below the historical average of 1.9 between 1989 and 2003.
- Nearly 27 percent of homeowners with a mortgage were underwater at the end of the fourth quarter, up from 23.2 percent in the previous quarter, according to Zillow.com, a real estate website.
The increase resulted from a 2.6 percent decline in home values during the quarter and the fact that fewer homes went through foreclosure after banks halted foreclosures to correct document-handling errors. Many economists and housing analysts expect an additional decline of 5 percent to 10 percent before prices reach bottom later this year or early next year. Markets that now appear to be undervalued include Detroit, Las Vegas, Atlanta and Phoenix. Even in such markets, high rates of foreclosure and underwater borrowers should keep downward pressure on prices, says the Journal.
Source: Nick Timiraos, "Home-Purchasing Power Increases," Wall Street Journal, February 9, 2011.
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