Think the Worst of the Real Estate Market is Behind Us? Think Again

As far as the real estate market is concerned, we’ve been in the eye of a hurricane for most of the year with the second half of the real estate market collapse still to come. In my view, the second half of the storm stands to be at least as bad, if not worse than the first half.

More data supporting this position surfaced this week. Consider this:

(Source: First American Core Logic) More than 15.2 million US mortgages are now ‘underwater’ with outstanding mortgage balances greater than the value of the property. That represents an eye-popping 32.2 percent of all mortgages. Another 2.5 million US mortgages were approaching negative equity position. When added to those mortgages that are already negative, 38 percent of all mortgages that exist in this country are affected.

When you look at the total value of the property in a negative equity position, it’s once again staggering. $3.4 trillion, the total value of outstanding mortgages, is now in danger of default if you apply only a little common sense. The multi-trillion dollar question is simply, how many of these homeowners will continue to make mortgage payments on a piece of property that’s worth less than the outstanding mortgage?

The answer is not all of them.

Several months ago, when the stimulus package was passed, I wrote that if the government planned on trying to spend our way out of this problem, they would: (1) not be successful and (2) need a lot more money than the $787 billion they decided to spend. Here’s just one reason why.

The mortgages in danger of default total better than 4 times the stimulus package already passed. Assuming the banks that hold these mortgages are still considered to be ‘too big to fail’, the government had better keep those money-making, printing presses on high. According to shear numbers alone, they’ve got a long way to go before this problem goes away.

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