From my Realtor email newsletter today:
Nearly 20 percent of home owners owe more on their homes than their properties are worth, finds a new study by First American CoreLogic. About 8.31 million properties were underwater at the end of 2008, up 9 percent from 7.63 million at the end of September. Corelogic predicts about 2.16 million properties will be underwater if home prices fall another 5 percent. The problem is the worst in Arizona, California, Florida, Georgia, Michigan, Nevada, and Ohio.
Nationwide, 68 percent of U.S. adults own their own homes, and about two-thirds have mortgages.
Source: Reuters News (03/04/2009)
So what? Being underwater is not the same as not being able to make the payment. You know, we keep hearing politicians and talking heads and consumer advocates using the term “under water”, as if this is something new and to be avoided.
The truth is, most people are under water on just about everything in life, and there has never been the sort of outcry about it that we now hear. Under water on their new car 2 minutes after they drive it off the lot. Under water on just about everything they purchase, including new furniture, clothing, boats, vehicles, computers, TVs, video games, etc. – all loaded up on the credit card.
Where is the bailout plan to cram down those 7 year auto loans so people are not “under water” on the car? Hmm?
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Below is the Texas A and M Real Estate Center Mark Doutzour’s take on the financial bailout. As usualy, he puts everything into a nutshell quite well.
COLLEGE STATION (Real Estate Center) – As negotiations continue over the proposed $700 billion bailout of the nation’s financial system, Dr. Mark Dotzour, chief economist for the Real Estate Center at Texas A&M University, offers his perspective:
“It’s a sad day in America when the federal government (the American taxpayer) has to bail out homeowners who purchased homes they couldn’t possibly afford. It’s sad because of the vast majority of Americans who live within their means and pay their mortgages on time are now being asked to pay for other people’s mistakes.
“It’s a sad day in America when we have to spend billions to bail out financial institutions that made loans to those people, then sold those loans to pension funds and endowment associations that had no idea of the risk they were taking when they bought the ‘complex and sophisticated’ bonds. ‘Complex and sophisticated’ is just a euphemism for ‘I have no earthly idea what I’m buying.’
“Now for the pragmatism. If we don’t bail out the banks, the American economy grinds to a halt. Many U.S. businesses are financed with short-term notes that mature in 90 to 180 days. This is called commercial paper. What happens when your 90-day note matures, and nobody will refinance it? Just ask Fannie and Freddie, who had $225 billion in short-term notes mature and nobody would refinance them. Hasta la vista. The commercial paper market is virtually frozen, and many businesses are in the same boat as Frannie was.
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