The Upside Down House and What It Means

Hello Hampton Roads,

The Upside Down House--Are you upside down on your house? 

Upside down means that you owe more than your home than it is currently worth.  If so you are not alone; according to research done by American Core Logic, there are 11.3 million mortgage holders or approximately 1 out of 4 people who are upside down on their homes.  According to the bar graph below, 36.3 of the 47 million mortgage holders owe less than their home is worth, and 2.3 million have less than 5% equity in their homes.

Why should anyone care whether or not they are "upside down?"
Why does it matter?

These are very good questions.  First it's important to know that just like the stock market the housing market has ups and downs-- and being upside down on your house today doesn't mean it will be like that in the future; you could be up when the market changes. Just like in the stock market, the real importance is related to whether or not you have to sell, and if so, how soon. If you can wait for the market to rise, or if you plan to be in your home for the rest of your life, then most likely it will not make a difference as long as you continue to make your payments. However, if you have to sell due to financial hardship or an imminent move, you may end up with a loss.  If you are in this situation, it may be in your best interest to see if you can sell your home as a short sale.

How does the number of those who are upside down on their homes correspond to the number of homes in foreclosure and in default?

For the 4th quarter in 2009 approximately 1in 6 homeowners are not making their mortgage payments.  The numbers are:

In foreclosure                        4.58%
In default (30+ days late):      10.44%
Total:                                   15.02%

Broken down by loan type we see:

Prime Loans

In foreclosure:                       3.31%
In default (30+ days late):     6.73%
Total:                                 10.04%

Sub-Prime Loans

In foreclosure:                     15.58%
In default (30+ days late):    25.26%
Total:                                  40.84%

FHA Loans

In foreclosure:                       3.57%
In default (30+ days late):    13.57%
Total:                                  17.14%

VA Loans

In foreclosure:                       2.46%
In default (30+ days late):      7.41%
Total:                                    9.87%

(To view our area, check out the latest foreclosure numbers in Hampton Roads)

Do you notice the trend in these percentages? 

The percentage of homes in foreclosure is significantly less than the percentage in default. That is, there are more homes in default than are actually being foreclosed on.  According to a recent article in the Wall Street Journal, for every new foreclosure, 7.1 mortgages are delinquent (in default). 

Thanks for reading!

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