Underwater mortgages/toxic assets

[kent nickell]

"""This implies that any housing ?recovery? will be about stabilization and stopping sales/price erosion ? not about regaining higher prices anytime soon . . ."""

I think the above statement is very useful when trying to value toxic assets to reality rather than wishful thinking....




http://www.ritholtz.com/blog/2009/05/22-of-homeowners-underwater/

By Barry Ritholtz - May 6th, 2009, 7:30AM

33% of Homeowners w/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 . . .

 

[The Mountains Voice]

Re: Underwater mortgages/toxic assets

"""This implies that any housing “recovery” will be about stabilization and stopping sales/price erosion — not about regaining higher prices anytime soon . . ."""

I think the above statement is very useful when trying to value toxic assets to reality rather than wishful thinking....

I run a large By-Owner network in North Georgia. I am also project manager for a new community development. I feel I have a good handle on the real estate market REALITY ON THE GROUND. Any substantial market turnaoround is wishful thinking in my opinion.

Here's a perfect example: A customer of mine has a home under contract. The bank was close to approving the deal at 20% down. It's a solid home, good neighborhood, aggressive price point. Good credit with buyer. Now they've raised the Downpayment quaification to 30% down.

Bottom line - the banks are still scared silly. Foreclosures are still increasing, and will continue. Since the "Stimulus Uncertainty" question is now off the table - banks are droping their britches in efforts to unload. This is further eroding the prices. This is the crux of the issue - it is NOT close to being resolved, with lots of pain still ahead.

And I could care less about these national, manipulated economic figures - IN THE REAL WORLD - MAINSTREET USA - people are scared, overly cautious & hurting - and it's getting worse, not better. The idiots on wallstreet created this mess, and all they are doing now is manipulating a "Marketing" Recovery - in that they are just "Selling" the concept of recovery. But they ain't got no teeth in it! It's just a sales pitch.