There are signs of housing stabilization and hints at a recovery near the end of 2010. Much of the recovery may depend on what the government does with homebuyers tax credits and how their stepped-up modification program works.
In 2009, American homeowners lost a whopping $500 billion dollars. That is a huge improvement over 2008 when homeowners lost a striking $3.5 trillion. Big city markets lost more than their fair share. In Los Angeles, housing values were pared by $60.6 billion while Chicago fell $49.6 billion and New Your dwindled another $49 billion. Pittsburgh values rose substantially and Boston real estate gained 1.5% in value.
Stan Humphries, Zillow’s chief economist, said, “Home values stabilized significantly during the second half of 2009, with total dollar value of U.S. homes increasing since June. Most housing markets across the country had a good summer, spurred largely by the government’s tax credits for homebuyers combined with very low mortgages.”
Laurie Goodman, Managing Director of Amherst Securities, testified to Congress that “negative equity is the most important predictor of defaults.” The House Financial Services Committee is examining private and public responses to the mortgage and housing crisis. “Buyers do not default because of negative equity alone. Generally a borrower experiences a change in financial circumstances. If the home has substantial negative equity, they choose to walk.”
In September 2009, 23% of homeowners were underwater. As of October, that number decreased to 21%, but foreclosure actions were affecting 28% of homeowners across the country. The rising foreclosure rate continues t negatively impact housing values.
The problems with the government backed $75 billion loan modification are cumbersome paperwork, insufficient income by borrowers and failure of those homeowners to remain current during the trial period. The mortgage industry is seeing homeowners willing to walk away from their obligations.