I have been talking about the collapse of the residential real estate market both locally and national and predicted over two years ago that if something did not happen to stop the free fall, the larger economy would tank as well. Sadly, no one seemed to wake up until a year later and the economic nightmare continues to worsen with record numbers of foreclosures during the last month. In this area, home values have dropped even if not as badly as in some regions of the country. Nevertheless, a new study indicates that 34% of the homes in the area with mortgages on them are now "underwater," meaning that the outstanding mortgage balance exceeds what the home can now reasonably sell for. This leaves sellers either having to (1) bring money to the table to sell, (2) endeavor to negotiate a "short sale" where the mortgage lender agrees to a lower payoff - something not easily negotiated - or (3) walking away and allowing the home to go into foreclosure. The last alternative in turn helps to drive home prices even lower and the downward spiral continues. Here are some highlights from this story:*
More than 110,000 homeowners in Hampton Roads owed more on their mortgages than their homes were worth at the end of June as home prices continued to fall, according to a report released Thursday. That's roughly 34 percent of all mortgages in the local market, according to First American CoreLogic of Santa Ana, Calif., which tracks mortgages across the country. The firm's quarterly report, which generated data for Hampton Roads for the second time, also said that an additional 16,000 mortgages will be "underwater" if home prices in the area decline 5 percent from their current level.
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Homeowners who purchased at the peak of the local housing boom, especially with little or no down payment or an interest-only loan, are the most susceptible to finding themselves "underwater," or "upside down" - owing more than a home is worth. Falling home values can erode any equity homeowners have in a newly purchased or refinanced home. Across the country, more than 15.2 million homeowners owe more than their homes are worth. . .
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The new report suggests that homeowners in Hampton Roads were more likely to have borrowed against their homes as prices in the region rose, Agarwal said. "We never knew the extent to which people in the area had borrowed against their homes," Agarwal said. "We knew people cashed out, because over the last several years you saw taxable sales growing faster than incomes. So the only way you can spend more than you earned is dipping into your wealth, such as getting equity from your homes." The total aggregate value of homes at risk of defaulting in Hampton Roads at the end of June was nearly $26 billion, according to the report.
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The number of negative-equity loans in the region could be exacerbated by the prevalence of local mortgages guaranteed by the Department of Veterans Affairs with no down payments, Holland said. After fees, those loans typically are automatically underwater, he said. Home prices in South Hampton Roads have fallen 4.4 percent in the past year, according to Real Estate Information Network Inc., the local multiple listing service. The median sale price for existing homes in June was $222,750, down from $233,000 a year ago.
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And as the housing market continues to sicken, business in the real estate industry - realtors, title insurance companies, surveyors, real estate attorneys, etc. - continue to struggle as well. The nations lenders have received billions in bailout funds but few seem to be passing along any benefits whatsoever to struggling home owners.
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