Americans Selling Homes Find Prices So Low Mortgage Exceeds Current Values

[Purveyor]

Feb. 13 (Bloomberg) -- When Mary Kamanu paid $409,000 for a house in Folsom, California, she never imagined that three years later it would be worth about 20 percent less and she would have to pay the bank more than $80,000 just to sell the place.

``I'm completely upside-down on my mortgage, like a lot of people,'' said Kamanu, who wants to move 12 miles away to live with her fiancé in a suburb of Sacramento. ``I know I'm going to have to come up with a big chunk of change.''

By the end of this year as many as 15 million U.S. households may owe more on their mortgages than their homes are worth, according to an estimate from Jan Hatzius, chief U.S. economist of New York-based Goldman Sachs Group Inc. That may fuel an increase in foreclosures, erode prices, and increase mortgage bond losses, he said in a Feb. 1 report.

``If borrowers who are underwater go into foreclosure, the properties are likely to be sold at discount prices and will further depress the price of housing,'' said Robert Engle, a Nobel laureate in economics who teaches at New York University's Stern School of Business in Manhattan. ``It becomes a spiral.''

Thirty-nine percent of people who purchased a home two years ago already owe more than they can sell it for, according to a Feb. 12 report from Zillow.com, a real estate data service. Only 3.2 percent who bought five years ago are in that situation, the report said.

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http://www.bloomberg.com/apps/news?pid=20601109&sid=atrbI3FEV3.I&refer=home

[Fredda Weinberg]

1. This is deflation n/t

[godai]

2. I saw a report that, in many cases, it's better to just walk away...

If you have 0% down payment and the price has fallen to where the mortgage is higher than the possible selling price, the suggestion was to consider that you were RENTING the house and just default. I presume there are negative effects on your credit rating if you do this.

In one case the ARM was going to something like 16% interest!! So many people got fooled by not reading, or understnding, the fine print.

[notadmblnd]

3. at this point I'd give the bank an option.

Either take the selling price and call it even or walk away and get nothing Cause either way her credit is going to suffer for it.

[jannyk]

4. Used to be, you'd have to come up with "a big chunk of change"

(20%) to get into a house. Now you have to come up with 'a big chunk of change to get out'!

This is so far from over that it's scary.

[mdmc]

5. wildtown