By Mike Caggeso
More than 8.3 million mortgage holders in the United States – one in five homeowners – are underwater. That is, they owe more money on their house than their house worth.
That's because the total value of residential properties fell $2.4 trillion in 2008, from $21.5 trillion in December 2007 to $19.1 trillion at of the end of 2008, according to a study from First American CoreLogic.
Worse, an additional 2.16 million properties could go underwater if home prices fall another 5%, the study said.
"We have way too much supply and not enough demand," Sam Khater, senior economist for First American, told Bloomberg. "People aren't going to purchase a home as long as prices keep falling, and someone who is worried about their job isn't going to purchase a home either."
The news comes the same day Toll Brothers Inc. (TOL), the largest luxury home builder in the U.S., reported its sixth consecutive quarterly loss – $88.9 million, or 55 cents a share, down from $96 million, or 61 cents, a year earlier.
Chief Executive Officer Robert Toll, citing research from the National Association of Realtors, said that, "ironically, now is a very good time to buy a home. With the decline in home prices and historically low mortgage rates, home price affordability is at an all-time high."
Never shy about commenting on housing-related issues floating through Congress, Toll also used the press release that announced quarterly earnings as a soapbox for his solution.
"Many experts continue to believe we must first stem home price declines before we can resolve the nation's economic and financial crisis. The recent stimulus bill shows that Washington is paying greater attention to our industry; however, we think more is needed," Toll said in the statement. "We advocate a buyer tax credit of $15,000 to be made available to all buyers of homes, not just first-time buyers: We must motivate the entire food chain of home buyers to stop the decline of home prices."
Starting today, at least one remedy will take effect.
As apart of President Obama's $75 billion foreclosure prevention program, loan servicers will lower interest rates of struggling borrowers so total payments are no more than 31% of their gross income. In addition to subsidizing a portion of the reduction, the government will throw in a few incentives.
News and Related Story Links:
First American CoreLogic:
Residential Property Values Fell $2.4 Trillion in 2008
Toll Brothers Reports 1st Qtr 2009 Results
Obama to test home loan do-overs