Warren Buffett and Ben Bernanke may believe that housing prices are stabilizing, but the number of Americans who owe more on their mortgages is growing. Those people are certainly more likely to default on home payments than homeowners who still have significant equity.
Some people owe so much on their home loans that the value of their houses may never rise to a level that will match the amount of the obligation to their lenders.
Reuters reports that real estate reporting service Zillow says that “declining home values left 21.9 percent of all American homeowners with negative equity by the end of the first quarter.” That figure is much worse than it was in the final quarter of last year.
It is hard to make the case that housing can really swing back up when such a large number of homeowners have what is close to an incentive to walk away from their houses. A sense of obligation as borrowers who signed an agreement and a fondness for their houses may be all that keeps these people in their residences.
The home equity problem is exacerbated by rising unemployment. As more people lose their jobs, there are fewer and fewer who can tap the value of their houses as a way to tide them over.
The housing market still has a long way to go before it finds a bottom.
Douglas A. McIntyre