Nearly 40% of Those with Home Equity Loans are Underwater

Jul 01

Nearly 40% of Those with Home Equity Loans are Underwater

Question: When will the housing bad news end?

I live in Southeast Texas. We have been pretty sheltered from the housing crisis. That said, housing in our area is moving slowly these days and prices are very soft. Our neighbors across the street put there house on the market in late January at a price of $209,000. They didn’t it leave it there long before they started dropping the price. They are now down to $158,000. This is disheartening to me because their house is a 5 bedroom and has been redone (though it’s still far from perfect) and our house is only a 3 bedroom. I pray we don’t have to sell any time soon.

I do think this couple put their house in a bad price range too quickly. Those searching for houses may not be looking at houses in the $150,000 price range. If their lowest threshold is $200,000, my neighbor’s house will be missed. So, my theory is that they put their house on the market at the wrong time of the year and they dropped the price too quickly.

Anyhow…

I read this in today’s WSJ:

Almost 40% of homeowners who took out second mortgages—extracting cash from their residences to cover everything from vacations to medical bills—are underwater on their loans, more than twice the rate of owners who didn’t take out such loans.

That statistic compares to 18% of underwater homeowners who don’t have second mortgages.

Overall, roughly 10.9 million homeowners (if you can call them that) are now underwater. The good news is that that number is down from 11.1 million in the fourth quarter of last year. The bad news is that some of those homeowners lost their homes to foreclosure.

I can’t help but wonder that maybe all our efforts to keep people in their homes has gone a long way in extending the misery by not allowing things to clear out. Something tells me that housing is going to be a mess for several more years.

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