The Housing Market Continues.

About one out of ten home loans made during the past two years are now underwater.

You might wonder what these people were thinking buying in this market, but here they are. That represents more than 1 million Americans who have taken out mortgages during that period. Most of those were Federal Housing Administration loans that required only a small down payment.

If you’re looking for sobering indicators that the U.S. housing market remains deeply troubled, you need look no further.  Home values continue to fall in many parts of the country, and suddenly it raises the real question of whether low-down payment loans backed by the FHA are contributing to putting another generation of buyers at risk.

As of December 2011, the latest figures available, 31 percent of the U.S. home loans that were in negative equity – in which the outstanding loan balance exceeds the value of the home – were FHA-insured mortgages. 31%!!!

Many borrowers, even since late 2010, who thought they were buying at the bottom of a disastrous housing market, seem to have been caught by a continued decline in prices across wide swaths of America. Even for loans taken out in December 2011 (less than four months ago, and the last month for which data is available) nearly 44,000 borrowers, or about 7.5 percent of the total new home loans, now find themselves under water.

“The overwhelming majority of the U.S. is still seeing home prices decline,” said CoreLogic senior economist Sam Khater. “Many borrowers continue to be quickly wiped out.”

The problem is not uniform around the country. In some areas, such as Washington, D.C., Miami and parts of northern California, prices are on the rise. CoreLogic predicts the overall U.S. housing market will finally bottom out this year, but I continue to project that the bottom of the US housing market will not occur until sometime in 2014.

Khater said that since October 2010, average home prices have fallen 7.4 percent. Overall, CoreLogic data shows that 11.1 million, or 22.8 percent, of U.S. residential properties with a mortgage are in negative equity, unchanged from the summer of 2010. According to the S&P/Case-Shiller 20-city composite index, which tracks home values in 20 major U.S. metropolitan areas, U.S. home prices were down 3.5 percent in February from a year earlier and are now at their lowest level since late 2002. Over the past 12 months, 15 of the 20 major metropolitan areas monitored saw declines.

“This is creating a new wave of underwater borrowers,” said Gary Shilling, a veteran financial analyst and well-known housing market bear. “We have all three branches of government trying to keep people in four bedroom houses who can’t afford chicken coops.”

My projection stands.


About Steve King

iPeopleFINANCE™ Chief Operating Officer. Former CEO of Endymion Systems, Inc. a $36m Information Systems Services company. Co-founder of the Cambridge Systems Group, the creator of ACF2, the leading IBM Mainframe Data Center Security product; acquired by Computer Associates. IBM, seeCommerce, marchFIRST, Connectandsell alumni. UC Berkeley alumni. View all posts by Steve King

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