Waterworld: 12 million American households are under water

News item, from the Wall Street Journal: "The relentless   slide in home prices has left nearly one in six U.S. homeowners owing more on a mortgage than the home is worth, raising the possibility of a rise in defaults -- the very misfortune that touched off the credit crisis last year."

Owing more than your home is worth is known as being "under water" or "upside down."

More:

About 75.5 million U.S. households own the homes they live in. After a housing slump that has pushed values down 30% in some areas, roughly 12 million households, or 16%, owe more than their homes are worth, according to Moody's Economy.com.

The comparable figures were roughly 4% under water in 2006 and 6% last year, says the firm's chief economist, Mark Zandi, who adds that "it is very possible that there will ultimately be more homeowners under water in this period than any time in our history."

The Journal reports that 39.9% of people who bought a home in Los Angeles in the past five years are under water.

Zillow, for what it's worth, reports that, on average, those 12 million people who are under water owe about $58,000 more than their home is worth. That adds up to $676 billion of "negative equity," Zillow reports.

And that raises a question that Zillow's top numbers cruncher, Stan Humphries, poses: If there is $676 billion in negative equity out there, how can John McCain's mortgage purchasing plan cost only $300 billion? Humphries adds, regarding the McCain plan:

• It benefits those homeowners who assumed the most debt closest to the height of the real estate bubble.
• It could create an incentive for more homeowners to default since they could then qualify for a reduced mortgage versus having to continue paying on an underwater mortgage.
• It places the full burden of relief on taxpayers, but taxpayers get no potential upside.

Your thoughts? Comments? E-mail story tips to Peter Viles

Photo: Flooding in Galveston, Texas, from Hurricane Ike, from Getty Images

Comments

[The Original RZ]

Why is there such a focus on "negative equity"? Everyone who buys a new car loses 40% of the value of that car the second they drive it off the lot, yet we never hear complaints on how they now owe more than their car is worth.

Yes, it sucks to find out that you paid too much for a commodity, but that's life. If those people hadn't bought during the bubble, then they'd have nothing to complain about.

[anonymous]

Okay, according to McCain, 100% of us are going to pay for the stupidity of 16%. That makes 84% who are going to pay the most, because 16% are getting off scott free. There needs to be stiff penalties for walking away.

[Dan]

Peter, thank you for continuing to point out the flaws and downsides to McCain's plan.

We all know the saying: "The law of unintended consequences."

When will government learn?

As others have stated: how about a break for people who overpaid in the 90s? Where's there handout?

Also, if we're gonna socialize the losses, let's socialize the gains. Everyone who benefits from this plan must surrender any and all appreciation in the house starting Oct. 1. So if Jimmy homeowner paid $1.1M for a beachfront bungalow in Santa Monica, now it's worth $700K, he's bailed out, and then he sells in 5 years for $1.5M, hey guess what Jimmy, you owe us (the US Taxpayers) $800K. Otherwise shut up and foreclose.

Man this whole thing gets me so steamed....

[MyLessThanPrimeBeef]

That's foolish, but right now, we have a bigger problem with frozen money markets.

So, yes, I would put the interim score this way on the two pro-bailout candidates:

McCain - an erratic fool
Obama - a peanut gallery fool

[Anonymous]

I think what McCain meant is that he PERSONALLY wanted to buy 300 billion dollars worth of underwater mortgages.

[dclogang]

As DR Evil would say to the greedy speculators under water.... "Boo-frickety-hoo!"

[dclogang]

As DR Evil would say to the greedy speculators under water.... "Boo-frickety-hoo!"

[Nick]

McCain's plan is the most retarded and asinine idea since the last bailout proposal enunciated by the Democrats in Congress. It's so aggravating that the American political system has managed to make the next presidential election about who will screw the country the least, where both candidates will screw the country A LOT. What happened to the dream of a candidate who didn't have absolutely moronic plans?

[Rainman]

Negative equity matters if you own a home and then face the need or opportunity to move. If you have to sell your house, and most people are relocated usually have to, then you'll be forced to bring cash to your closing. That's not easy if you took on too much debt to buy your home. This lack of flexibility and dire outlook only makes it more likely that the wave of foreclosures haven't come close to cresting and that the future economic outlook is dire.

[cm]

Not everyone in that 16% will walk, especially those with fixed rate mortgages who are still employed, can handle the payments and don't walk away from their debts.

It speaks volumes that 40% of homebuyers that bought in LA from 2003-2008 are underwater, and its only going to get worse.

[Chris Pepper]

fuzzy math? I recall GW during one of his debates vs. Gore was calling everything "fuzzy math". I think we need him to address the nation, calm everyone and just call "fuzzy math". No worries.

[Nelcisco]

So, here we have two pro bailout candidates,anonymous says there needs to be stiff penalties for walking away,true
but look at the messege our so called leaders are sending, homeowners are just following suit.

[CompaJD]

That would make Ron Paul Kevin Costner.

[OverIt]

We renters really are idiots aren't we? Not only could we see that the ponzi scheme was unsustainable, we should've seen the subsequent bail out - it was inevitable as soon as prices began declining.

I don't want to compound my error by voting for one of these Assclowns, so for once I'm not.

[Tim]

One question, what prevents journalists from asking a rather obvious question about this sort of bailout: what happens to the homeowners' down payment?

It seems unreasonable to shaft the banks for the difference between the old mortgage and the new mortgage. And it seems unfair for taxpayers to be involved in any way. But it also seems unfair for home owners to take a haircut for the market trend. Yes there was greed, and stealing, but it seems highly unlikely it was 80% or 90% or more of these deals. More likely greed and stealing was involved in maybe 20-30%.

I'd like to see a plan where banks have the good sense to rewrite these mortgages to current home value minus 10% with some sort of upside split, with more going to the home owners who hold on to their new mortgage for more than five years (to help reduce defaults). That approach would exclude taxpayers and it would hopefully result in a fair split in losses and gains between the banks and the home owners. You might lose part of your down
payment, not all of it.

Then again, if banks have sold the mortgage long ago, and thus made their money, and the mortgage is part of a bond, then who gets involved? Again, there's a lot to this story that journalists don't seem too educated enough and/or bothered about to find out..

[firesale]

I think we need to begin to see a shift from
viewing what is happening here as, "Oh! The
poor dumb home buyer of the past 5 years."
... to a stance which allows for, "You greedy
s.o.b., you chased the RE market and caused
this to fall in on all our heads." As Diocletian
once said, "You stay. You pay. Or you die."
Enough of worrying about underwater
morons who might walk. Let's put some teeth
into the non-recourse loan situation. Hell, seems
everything else unconstitutional is flying
these days. How about, no forgiveness of any
kind to those who walk. No credit repair terms.
Ever. No tax forgiveness. Let's turn them
over to the IRS for 30 years of garnishment.
Slap liens on any and all other property and
bank accounts. If you participate in keeping the
dominos falling instead of standing and paying,
then we need laws that will make sure you
never stand again.

[aj]

There is a choice other than the two...excuse me one party candidates... The choice is Ralph Nader
I wish more main stream media covered him let alone
include him in any debates. It is truly an outrage.
Thank goodness for the internet and the ability to get
the full picture. Ralph Nader tells it like it is and doesn't pander to the corporate lobbyists.

[Tokyo Renter - Ex LA Renter]

Here in Tokyo, Japanese stocks are currently taking a beating!

Currently just over 800 points down, but had hit 995 points down!

http://www.nni.nikkei.co.jp (English)

Japan may also consider opening up it's vast cash reserves for the IMF to loan out to struggling companies.

[firesale]

Where's my posting, Peter? Hope it's not too hot to handle?

[Nothing Paulson Has Done So Far Has Worked!!!!!!!!!!!]

We The People of the United States of America, in order to preserve, protect, and defend our “more perfect union,” must act now! The chart below represents one day’s worth of trading on the Dow Jones Industrial Index, despite promises from Treasury Secretary Paulson, Fed Chairman, Ben Bernanke and President George W. Bush that ‘confidence’ is being put back into the market. This is also despite the US Taxpayers giving up $700 Billion towards this ‘plan’ to instill confidence. Does this LOOK like confidence to you?

http://www.hrillc.com/RJ/DOW%20100908%20....

The fact is, NONE of this so-called ‘plan’ will work! The ONLY thing that WILL work is to restore TRUST to the system and the only way that can be done is by forcing each and every one of these companies to pull their ‘assets’ out of hiding. No more phantom accounting. No more legalized fraud! It must be done now, within 24-hours or the United States will follow Iceland and worse. Worse because we are the world’s reserve currency and we will literally pull down each and every country on the planet. Worse yet, is for those of us who are Americans, WE WILL LOSE OUR COUNTRY ENTIRELY!!!!

Each and every one of you reading this must right now, and continuing until this is done, call your Congressman, call the White House, call every single media outlet, every newspaper, every person you can possibly tell and DEMAND RIGHT NOW THAT OFF-BALANCE SHEET FRAUD BE STOPPED EFFECTIVE IMMEDIATELY!

THIS IS OUR ONLY HOPE.

AMERICA’S FUTURE NOW LIES IN THE HANDS OF HER PEOPLE

Her government has not only led us to this place, but has completely failed to protect her.

WILL YOU ALLOW THIS TO HAPPEN?

www.FedUpUSA.org

[jeffreez]

Thanks 4 the tip AJ.

You would make a great CNN journalist...give us only the info u want the sheep to hear.

There are 6 candidates running.

And OH MY GOD....3 of the 6 are black!
All this time I thought only the Messiah Obama was brave enough to take on racist America.

Ok, to be fair, u can exclude Cynthia Mckinney from the 6 and call it 5 . What the hell happend to the Green party? I'm no Green, but I respected Ralph Nader.

[sailor7x]

HEY PETE

How will a crashing stocks worldwide affect LA Land's prices?
How about a PETE original article complete with PETE historical analysis!

[sailor7x]

HEY AJ

As a K Street lobbyist for the rich I suggest you stop getting people's hopes up for Nader. Under no circumstances will the rich people allow a President who is smart and cares about the sensible taxpaying citizens here. So people, don't throw your vote away and don't make my life difficult by going to any libertarian or other third party websites. Remember K Street's pledge!

RICH PEOPLE ALWAYS WANT WHAT IS BEST FOR EVERYBODY!!!!

Now get back to work I need your tax dollars for a 4 lane highway to an Indian Casino in South Dakota.

[latesummer2009]

Wow, 40% underwater that bought in the last 5 years is incredible. And look HOW FAST this occurred. Within the last 2 years. It makes you wonder, what the next year will bring. Anyone who bought in the 2000s will eventually be underwater.

What I find interesting is, people on the Westside believe that their area is diiferent or immune. I predict the Westside will see rapid declines, as the market "Catches Up" over the next year or two.

http://www.westsideremeltdown.blogspot.com

[happyhomeowner]

Zillow says my home has gone up in value!

Whoooopie!