The Virginian-Pilot
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More than 71,500 homeowners in Hampton Roads owed more on their mortgages than the homes were worth at the end of September, according to a report released Tuesday.
That's nearly one in four local mortgage borrowers -22 percent - who are "underwater" on the loans, according to First American CoreLogic, which is based in Santa Ana, Calif., and tracks mortgages across the country.
Tuesday's report is not comparable to earlier estimates of underwater mortgages by First American, which revised its methodology. It now accounts for mortgage payments made by a homeowner and does not assume home equity lines of credit are fully drawn down.
"This enhanced methodology provides a more precise picture of this significant problem that so many home-owners are facing," said Mark Fleming, chief economist with First American CoreLogic.
While the company could not provide numbers for the second quarter using the new methodology, under the old method the number of underwater local homeowners would have grown to 35 percent from 34 percent at the end of June.
"Things have not gotten better," said Vinod B. Agarwal, an economist at Old Dominion University. "But things have not gotten much worse."
Homeowners who purchased at the peak of the local housing boom, especially with little or no down payment or an interest-only loan, are the most susceptible to finding themselves underwater in a loan. Falling home values can erode any equity homeowners have in a newly purchased or refinanced home.
Economists and real estate experts say that owing more on a home than it's worth is one of the most common precursors to foreclosure.
Bank repossessions and foreclosure auctions in Hampton Roads have remained at high levels in recent months, and First American's report indicates foreclosure activity could grow, dampening the prospects of a quick housing recovery.
"The price declines here have not been as steep as in other parts of the country," Agarwal said. "Still, if you have more foreclosures coming as unemployment increases and more of those properties come onto the market, that puts downward pressure on prices."
Home prices in South Hampton Roads have fallen 3.3 percent in the past year, according to Real Estate Information Network Inc., the local multiple listing service.
At the same time, local home sales have spiked as buyers rushed to take advantage of tax credits.
First American's quarterly report, which generated data for Hampton Roads for the third time, also said that 20,629 more mortgages will be underwater if home prices in the area decline 5 percent from their current level.
While not every homeowner in negative equity will go into foreclosure, Agarwal said, it reduces their ability to sell the homes without taking a loss.
"I think part of this issue with negative equity is because people are not putting enough money down when they buy their homes," said Agarwal, referring to mortgages guaranteed by the Department of Veterans Affairs with no down payments and other mortgages that require very little down.
Across the country, nearly 10.7 million homeowners - or 23 percent - owe more than their homes are worth, First American reported. The majority of such negative-equity mortgages are in states such as Nevada, Arizona, Florida, Michigan and California.
Josh Brown, (757) 446-2318, josh.brown@pilotonline.com
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Common sense
A chimpanzee can get a real estate license, and mortgage broker standards have been even less than that. Both of these "industries" ruined the economy by selling lies to fools, collecting commissions, then passing the time-bombs on to the economy for eventual mass detonation.
So the common sense lesson prevails; do your own budget math, take responsibility for your financial lot in life, and ignore what the telemarketer/realtor types say you can or should "afford". . . . and NEVER pay them anything close to those standard ludicrous comissions they try to charge.
Maybe then the parasites will die out and the housing industry will regain a semblance of integrity.
A chimpanzee ??
Most of the Real Estate Agents and/or Brokers have at least a college education and pass a very intensive license examination. Every two years the Real Estate Professional is required to take about 20 hours of continuing education (the number of hours depends on the sales or broker) in order to renew their license. A chimpanzee wouldn't get into kindergarden no less the Real Estate qualifications.
The downfall of many Mortgage companies was not the staff but the regulations within that company not abiding to the Fannie May or Freddie Mac rules and regulations. True Real Estate Professionals in both areas have a high standard of integrity.
Actually, many of the
Actually, many of the mortgage salespeople didn't have licenses. They can operate under someone who does.
Don't forget the popular line, "Don't worry about the loan now, you can always re-fi in the future!"
I'm having a hard time here ....
Am I the only person reading this post that had to share a bedroom with two brothers growing up? What is wrong with these people today? They act as if they're going to bruise their child's little psychy if they don't live in a 4000SqFt home with 20 rooms. It's pathetic. I can actually afford the mortgage on one of those homes, but instead I choose a quality of life versus a quantity of stuff. If you can afford it, that's your choice; I say go for it. If you can't afford it, and you buy into it, then you're an idiot.
the flip side
No one ever talks about the people living in much larger homes than their income would seem to justify and somehow managing to afford it with money to spare. It can be done... A lot of hard work, some luck, common sense, timing etc. It is the land of opportunity but unfortunately the powers that be seem to want to strip us of that :(
the reality
is that with large houses out of the budget comes added expenses and taxes that are out of budget. The problem with your statement is that that not enough people managed to keep their overbudget homes, driving up supply in an economy with waning demand. A person can only buy one house every couple of years. Homes are not consumables like toilet paper and toothpaste, they are durable goods. Hence putting people underwater. No one put us here but us. The banks were just giving people what they asked for.
The Chickens Always Come Home to Roost!
Least we forget the PTB allowed the banksters to pump the real estate equity bubble shortly after 9/11 to spur the sagging economy. Recall when homes jumped 20-30% in value out of no-where? People went and did what? Got second mortgages or were conned into buying homes that they could not afford. What did Bush say? Go shopping! Do Ninja loans ring a bell? No or little documentation to show ability to pay. Brokers loved it! Hummers rolled off the lots and credit flowed freely. When the Banks became market casinos, these mortgages were sold in bundles on the world market as investments because real estate never devalues right? Then there were other creative financial products to be bought and sold called derivatives, hedge funds, credit default swaps, equity whatever's? Then Sen. Gramm said we are all a bunch of whiners! Then at the end of the eight year nightmare, Bush passed TARP and it was supposed to buy up the toxic debt or there would be Marshall Law Q: Paulson. What Congress repealed the Glass-Steagall Act? Whiner!
Laws of Nature Applied to RE
Real Estate agents and mortgage brokers will never tell you these simple rules which I learned from a blue collar machinist collegue of mine in chicago back when I was 16: First: House Prices are function of the rent they can collect. The higher the rent, the higher the price. He told me, never pay more than 150x one months rent for a house. (ie. a $150K house should collect at least $1000 per month). Second, Rents are a function of income in the local area. A person paying $1000 per month in rent should be at least making gross income $3000 per month. Third, never borrow more than 2.5x your income for a home. So a person making $36,000 per year (average in this area) should never borrow more than $90,000. Now consider a dual income couple making around $75K per year total. - the most a house on average should cost $180,000. I don't see many single family - average homes on the market for $180K. Gravity has a long way to go, unless there will be some magical pay raises.
Amen!!
This REALLY is the hard truth of the matter. You've seen the end of most folks house buying days, unless salaries go WAY up or housing values fall WAY down. That is if the folks buying wish to do it responsibly AND live in safe neighborhoods.
I remember the 3X Income rule, I used to hear that should also include 20% down. Good luck with either of those; either finding a decent home in the area with areas median household income, and saving 20% of the cost of the home.
A friend of mine recently had to find a place to live and the best that could be done under 200K was Lambert's Point on the fringes of a sketchy neighborhood. The house is nice, and is near ODU, but it isn't the type of place to go bike riding or go for a nice after dinner walk.
Congratulations to your friend on moving to Lamberts Point
Lamberts Point is a great neighborhood that is going through a period of rapid change. I expect that when the new student apartments across Hampton Blvd. are completed next fall, many students that are targeted for theft and burglary from their vehicles will move to the newer, more secure housing near the ODU Village. This should help reduce property crime in the neighborhood. Moving the ODU police-NPD joint operations center to LP should help curb the crime here, though in truth, it really is mostly related to the student population. The new rec center is almost complete, a new addition to the senior housing is under construction, and we now have a new Dunkin Donuts open. I hope to meet your friend at our Civic League mtg, Dec. 15 @ 7pm @ ODU Webb Ctr.