Underwater Stats

The term "underwater" means that people owe more on their properties than they are worth or having negative equity. There are a few ways how homeowners can find themselves in this position - by putting no money down and seeing any sort of decline, putting some money down (say 5%) but seeing a larger than the original investment, and HELOCing the property so much at peak than experiencing a decline. It is barely conceivable how this first group was ever possible to exist in the first place - a big part of the problem. The middle group deserves the most sympathy in these situations - they were trying to do the right thing just got the timing wrong. Most people in the third group did the wrong thing - except the few that are underwater for medical reasons.

Today CNN bring us some underwater stats in an article titled 7.5 Million Homeowners Underwater. The first thing to point out is that they estimate there are at least 7.5 million owners underwater - however in February the New York Times estimated at least 8.8 million. With the continual decline the 8.8 would be larger now, so we wonder what the real number could be. Perhaps that 1.3 million lost, sold or renegotiated their loans. Perhaps. Well, lets take a look at the article -

The report on the growing problem of negative equity, out Friday from real estate research outfit First American CoreLogic, is actually a conservative estimate. Some reports, including one from Moody's Economy.com, puts the number of underwater borrowers even higher, at as many as 12 million.

"Being underwater doesn't necessarily mean that you can't pay your bills," said [Mark Fleming, CoreLogic's chief economist], "but it's a necessary condition of default."

Borrowers who are underwater but have enough income to pay bills can keep up with their mortgages - even if they don't like paying more to live in a home than it's currently worth. On the other hand, anyone who runs into trouble paying their bills but has positive equity in their home can avoid foreclosure by either borrowing against their home, or simply selling it.

...
Nevada, which saw home values plunge by more than 30% during the past 12 months alone, according to the latest home price report from S&P Case-Shiller, tops the list of states with the highest numbers of underwater borrowers. A full 48% of homeowners there have negative equity. Nevada and the other so-called bubble markets saw tremendous price run-ups, and are now watching home values plummet. So even buyers who put 20% down don't stand a chance.

In many bubble markets, home prices got so high that the only way that many buyers could get a loan was by using what Fleming called "affordability products." These included adjustable rate mortgages with rates that were set artificially low for a few years, until resetting much higher, as well as mortgages that required little or no down payments.

The article also provides a list of the top ten states underwater (the bad list) -

State	# of mortgages	% underwater
Nevada	609,577	47.8%
Michigan	1,145,572	38.6%
Arizona	1,287,076	29.2%
Florida	4,248,470	29.2%
California	6,461,981	27.4%
Georgia	1,456,327	23.2%
Ohio	1,905,000	22%
Colorado	1,045,773	18.3%
New Hampshire	144,479	17.2%
Texas	2,721,638	16.5%

And the Bottom ten states that have underwaters (the good list) -

State	# of mortgages	% underwater
New York	1,554,607	4.4%
Hawaii	201,188	5.6%
Pennsylvania	1,413,181	5.7%
Montana	87,181	6.9%
Connecticut	678,766	7.4%
Alabama	238,978	7.4%
Oregon	641,820	7.5%%
Washington	1,273,659	7.6%
New Mexico	186,844	8.2%
New Jersey	1,748,179	9.3%

While it is good to see that NJ is in the bottom ten for underwaters, remember we are also number 8 in the national foreclosure activity statistics.