20% of Homes Underwater? Think Again!

Zillow.com the real estate industry's barometer of home prices, today reported that 21.8% of all homes in the US are "Underwater." That means that the house is worth less than the mortgage. That amounts to about 20 million homes.

The facts are worse than the news. If 20 Million is 21.8% of all homes, there are approximately 100 million homes in the US. However, 1/3 of them do not have a mortgage. Therefore, 20 million means that actually 1/3 of all homes with mortgages are underwater!

Think of that. What does that mean for the housing market, the banks, the economy?

A sizable number of those homes will be lost to foreclosure. What incentive does a homeowner have to keep up with his payments if an emergency comes up? Will they pay their mortgage or their doctor bill, or their exploding credit card bills, etc.

This means a continued increase in the amount of homes foreclosed on and a continued drop in prices as those foreclosed homes are dumped on the market at fire-sale prices.

Typically, regional bank reserves are about 50% in home mortgages. If 1/3 of them are underwater, what does that do to the value of the bank reserves? For every $1 loss in reserves, the bank will have to cut $10 in lending, adding to the drying up of credit.

How about the big, money center banks sitting there with Trillions in housing derivatives? "Normally" losses of 1-3% in the value of the mortgages underlying the security is projected. What happens to the value of the security when those losses approach 30%? Again, the value of the reserves is dramatically slashed, further choking off credit.

Unfortunately, we are in worse condition than the mainstream media and the government wants you to believe.

If you want to learn more about the reality of our situation and what you can do to protect yourself and your family from economic ruin, read the other posts in this blog.
Bill Young, 646-961-3818