Note that this article doesn’t quite get the original report right, sort-of kind-of thank goodness; it confuses mortgage holders with homeowners when reporting the percentage of underwater mortgages (mortgages where the holders owe more on a piece of real estate than the real estate is actually worth). In other words, 28.4% of homeowners with mortgages have underwater ones, not 28.4% of all homes.
This should be only mildly comforting, given that being told that over 28% of mortgage holders might be better off just abandoning their loans* is not exactly good news. It is, in fact, fairly frightening and disastrous news. It means that a key feature of many Americans’ retirement strategies – the accumulation of real estate equity for later use – has been effectively gut-shot, and is now messily expiring in a ditch. It means that our economic recovery is going to continue to be hobbled by a housing market that has not yet hit bottom. It means that growing consumer confidence will still be constrained by what is a generally rotten and widespread structural problem.
But it’s not the absolute Armageddon promised by the Bloomberg headline.
Moe Lane (crosspost)
*I don’t recommend defaulting on an underwater mortgage: after all, I’m paying mine. But we’re starting to get to the point where we’re relying on the essential willingness of the American people to play by the rules even when it hurts them. It’s not at that point – yet; the hassles of going bankrupt (or simply walking away and throwing the bank the keys) are still more or less worse than the hassles of paying too much on your mortgage every month. But when that changes… well. It is not going to be pretty.