Breakout Writes: Underwater mortgages are a bigger problem than the national average suggests
If you follow real estate prices or sales trends or the number of homes going into foreclosure, you’re apt to have a pretty positive feeling that things are improving. If you dig a little deeper, however, and look only at the 15 hardest hit states, you’ll find a totally different story.
While these outlier markets and metropolitan areas are also seeing improvement, they are still years away from breaking even and being whole again.
For example, December’s headline data from RealtyTrac showed the national rate slipping to 18% of homes being underwater or having negative equity (which simply means a homeowner owes more than the property is believed to be worth), but at the bottom of the scale, there are still 9.3 million “deeply underwater” homes that are in the hole by twenty five or more. In fact, six states that are at least ten points above the national average of 18%, including Nevada (38%), Florida (34%), Illinois (32%), Michigan (31%), Missouri (28%), and Ohio (28%).
The case in certain cities is even worse, as the latest data shows towns such as Las Vegas, Orlando, Tampa and Chicago still have negative equity ranging from 33 to 41 percent.
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What a shocker. Las Vegas still has negative equity to the tune of 33-41% even though Blackstone and other investors have been buying real estate by the billions in the city (to the tune of 50-70% of all transactions in the city are to all cash buyers/investors). I wrote about it in my previous article Timing The Real Estate Market Crash.
Is this good or bad? It depends on who you listen to. If you listen to traditional media and real estate professionals, this is of course, great news. The real estate market has bottomed and on the way up. Eventually, the negative equity in question will be recovered. However, if you listen to assholes like me, someone who would publish a blog post titled I Am Calling For A Real Estate Top Here, you would have a different point of view.
Listen, this is fairly basic and easy. The real estate market recovery has been driven by excessive credit available to financial institutions, private equity and investors (not you). Still, while some select markets, such as So. Cal, have almost fully recovered, the rest of the country continues to lag behind. As the article above suggests, to the tune of 30-40%.
What troubles me the most is the fact that the real estate market is starting to roll over. As the stock market declines into the 2017 bottom, the US Economy will once again experience a severe recession. The real estate market will also roll over and begin its 3rd leg down. As I have suggested previously, the 3rd down leg down is the most severe. As such, I wouldn’t be surprised to see real estate decline to the tune of 20-50% from this point on.
My valuation work displayed HERE showed that real estate could and technically should decline to the tune of 45-70%. As such, it pays to anticipate things.
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