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.
A week ago....
I was underwater a week ago. But then the rain stopped, the water slowly drained away and the water was gone.
However, now I'm under leaves!!
Share the blame....
In 2008 the median VB home price was $225,500. The minimum qualifying income needed to purchase this house was $73,000. According to an article appearing in a Feb 2009 V-P article, the 2010 FY assessed average value, was $312,000, down from the 2009 average assessed value of $327,200.
The median household income in 2007 was $61,234...way below the qualifying minimum.
VB real estate has been overvalued. One can argue that the price reflects demand. Based on recent developments, I would argue that the inflated price was based on exaggerated promises by realtors, and out-of-control assessments. Co-conspirators were banks and the adjusted assessments that fit the asking price.
Again, there were red flags all over the place when the CC and Planning Commission approved these $400,000+ developments. But again, city leaders couldn't get beyond the $$ signs.
Home prices
One of the major factors in the increase in home prices in our area was an influx of people coming from high-prices areas. Some developments are almost completely populated by refugees from Northern Virginia suburbs, for example. However, once people in No. VA could no longer sell their homes for huge profits, and then could no longer sell them at all, then they could no longer move, say, to Va Beach. So that source of homebuyers with wads of money from selling, or cash-out refinancing a house elsewhere completely dried up. Good-bye high-end home market.
So!!!!!
To all the bloggers who have negative things to say about people who has morgt. is underwater, they don't need noone now to tell them they must live within their means. I blame the people who sought customers out and mislead them into these high morgtgages. In my opinion they should file bankruptcy. Their credit will get repaired and they could start over with a lesson learned. So with the advice from my real estate lawyer. Pay your mininum mortgage and stay in your home and when you die let the bank deal with it. Keep all your money and enjoy life.
I can only comment on VB.
A few years back, me and the Mrs. were looking to upsize a tad. We went to a builders coming out dinner to see the price of a new development we were interested in along Indian River Road. Now we live relatively close to this development and know the local market. We literaly gagged when they announced them at $150-200K over surrounding neighborhoods.
This was base price prior to any upgrades which were many putting these bad boys in the low to mid $500K range in a $300K median area.
You tell me how we got here...I say builders served up overpriced products to greedy buyers who could acquire loans outside their income levels from overzealous bankers IMHO.
Needless to say, I stayed put and have 5 years left on my mortgage with tons of equity.
Nobody cares about the true
Nobody cares about the true value of the place, or if they can afford the loan when they believe the value of the place will increase 20% year over year forever. Everyone was going to get rich. Houses were paying more than jobs. My credit unions had signs encouraging people to borrow against their homes to take vacations (using long term debt for short use items.
$100/sqft + in Hampton Roads is joke.
As far as outsiders flocking to the area after cashing out in other areas (the scene calls them equity locusts) I'm sure it happened some. But now those people realize the area is boring repeat of strip malls and will leave. The lack of home price appreciation drowned more than a few spirits I'm sure.
My home cost more than
My home cost more than $100/sq' to build.
So First American CoreLogic changes their calculation
methodology, and POOF!...the percent underwater drops from 35% to 22%.
I have to wonder if our rulers in Washington and their puppet-masters, one of which is the real estate lobby, started to do some arm-twisting at CoreLogic. The timing of the calculation changes seem very convenient for the government, and the real estate industry.
Here's another quote on what changed in the methodology:
"First American CoreLogic revised its methodology for the HPI report beginning with August data. This includes an expanded transactions database..., a new weighting methodology, a 12-month forecast, and metrics that exclude distressed sales (short sales and REOs) which have become an increasingly large share of sales activity." METRICS THAT EXCLUDE DISTRESSED SALES! In other words, if you pull out the distressed sales, and gin up the statistics with "forecasts" (wink, wink), OF COURSE you can make the numbers look better. Unbelievable!
It's All About You! (while also pointing three fingers at me)
Do yourself and your family a favor this year. Take the cash you planned to use Friday for gifts and send it to pay down your mortgage. Shred those coupons every one. And if, you just sent off your minimum mortgage payment, have little cash left til next payday and are holding credit cards in one hand and coupons in the other, what are you thinking? You cannot afford any of it, taking future unearned income in 2010 to spend in 2009. The common denominator for bankruptcy and foreclosure- you and me the consumer, not the banks, not the Republicans, not the Democrats, and not the employers. Take full control of your life and get agreement from other family and friends to join in and serve even for just an hour at a soup kitchen or an outreach center. Ask your children if they'd wrap one of their favorite old toys as a gift for a child eating with his homeless family this winter.
Can't pay for it, don't buy it.
That's what my grandma always said.
Several few years ago as a prospective 1st time home buyer, I "qualified" for a $320K mortgage. I asked the loan officer how that was possible given my income at the time. He advised me that once the house was mine I would have instant equity & I could sell it for a nice profit. That didn't answer my question of HOW I qualified so I left his office and found a different mortgage co. I ended up buying a $155K condo and lived there comfortably for several years, all the while dilligently saving as much as possible. Today, while so many unfortunate people are screaming poverty and expecting a stimulus to bail them out of their bad decisions, my wife and I are doing better financially than ever before. We sold the condo & are completely debt free. We didn't make much on the condo given the market but I'm still happy with the return. We're currently in the process of buying a "McMansion" for MUCH less than the original sale price. THE LESSON? Live within your means, save every penny and be patient. Thanks Grandma