As the foreclosure crisis continues in the U.S., there is a pocket of Americans who have managed to make their mortgage payments and keep their homes, but who also owe more than the homes are actually worth. While some may owe $200,000 on a $198,000 home, others may owe as much as $200,000 on a home only worth $75,000. Millions of families now find themselves in the 21 Century equivalent of the “Money Pit” – impaled onto the stake of upside down mortgages.
15 million Americans are “underwater” in this manner, an increase from 13.9 just last year. The worst hit areas include Nevada, Arizona, California and Florida. In Las Vegas, in particular, 81% of homes show negative equity. Similar numbers are emerging from Reno, Orlando, and Modesto, CA.
The increase in foreclosures has lead to a decline in home values, economists say, and an unemployment rate of 9% means these problems will continue, at least for the near future. In the long run, however, economists expect the situation to improve. Later this year, they expect a boom in home values as things begin to return to normal in a market that has been particularly hard hit by the recession.
According to Economist David Blitzer with Standard & Poor’s, those currently underwater will probably survive the storm.
“These people will manage to make their mortgage payments, hold onto the house and, if home prices resume their long-term trend, which is to do a touch better than inflation, a lot of these underwater situations will turn out to be above water.”
For those who are not underwater, now is still a good time to buy a home, as there are plenty of good deals and low prices. With the uncertain future, however, many may be reluctant.