From the NYTimes, some pretty astonishing numbers. 10% of all homes are valued at 75% or less of their purchase price mortgage.
One word: Yowza.
The relevant bit from the article:
New research suggests that when a home’s value falls below 75 percent of the amount owed on the mortgage, the owner starts to think hard about walking away, even if he or she has the money to keep paying.
In a situation without precedent in the modern era, millions of Americans are in this bleak position …
… The number of Americans who owed more than their homes were worth was virtually nil when the real estate collapse began in mid-2006, but by the third quarter of 2009, an estimated 4.5 million homeowners had reached the critical threshold, with their home’s value dropping below 75 percent of the mortgage balance …
… With figures released last week showing that the real estate market was stalling again, their numbers are now projected to climb to a peak of 5.1 million by June — about 10 percent of all Americans with mortgages.
~alex
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Just to be clear, looks like they’re talking about mortgage value, not purchase price. Right?
Yes, Lou, that’s right. 75% of the value of the mortgage.
~alex
Thought experiment: If you hadn’t read that item, but someone asked you to guess how many houses are worth 75% or less of mortgage balance, what would you have guessed?
I would have guessed 15-20%. So 10% is actually better than expected!
You can see how useful this quality of being pleasantly surprised is in some prosfessions, like Wall Street analysis.
At one time I sold real estate in inner city areas, some of the toughest neighborhoods. A lot of sales were with very high LTV, up to 100%. Lots of mortgages were interest only, so not amortizing principal, or one of those weird COFI loans which gave the option of not amortizing principal. I’d have to guess a lot more than 10% of those owners are underwater.