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.