Falling Home Prices Drag New Buyers Under Water
(Reuters) - More than 1 million Americans who have taken out mortgages in the past two years now owe more on their loans than their homes are worth. Many borrowers, particularly since late 2010, thought they were buying at the bottom of a housing market that had already suffered steep declines, but have been caught out by a continued fall in prices in wide swaths of America. "The overwhelming majority of the U.S. is still seeing home prices decline," said CoreLogic senior economist Sam Khater. "Many borrowers continue to be quickly wiped out." Florida has seen one of the greatest drops in house values since the housing crash of 2008, 30 percent on average since October 2010 and over 50 percent since the height of the bubble in 2006, according to Case-Shiller.
CoreLogic says a significant factor causing recent home loans to slide under water has been the availability of government-insured mortgages that require only a small down payment. These loans, insured by the FHA, require a down payment of as little as 3.5 percent of the purchase price, providing only a small cushion of protection against a drop in home prices that could drive a borrower into negative equity. "This is creating a new wave of underwater borrowers," said Gary Shilling, a veteran financial analyst, "We have all three branches of government trying to keep people in four bedroom houses who can't afford chicken coops."
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(Reuters) - More than 1 million Americans who have taken out mortgages in the past two years now owe more on their loans than their homes are worth. Many borrowers, particularly since late 2010, thought they were buying at the bottom of a housing market that had already suffered steep declines, but have been caught out by a continued fall in prices in wide swaths of America. "The overwhelming majority of the U.S. is still seeing home prices decline," said CoreLogic senior economist Sam Khater. "Many borrowers continue to be quickly wiped out." Florida has seen one of the greatest drops in house values since the housing crash of 2008, 30 percent on average since October 2010 and over 50 percent since the height of the bubble in 2006, according to Case-Shiller. CoreLogic says a significant factor causing recent home loans to slide under water has been the availability of government-insured mortgages that require only a small down payment. These loans, insured by the FHA, require a down payment of as little as 3.5 percent of the purchase price, providing only a small cushion of protection against a drop in home prices that could drive a borrower into negative equity. "This is creating a new wave of underwater borrowers," said Gary Shilling, a veteran financial analyst, "We have all three branches of government trying to keep people in four bedroom houses who can't afford chicken coops."
READ ENTIRE ARTICLE
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