Tuesday, August 12, 2008

 

One Third of New Owners Owe More Than House Is Worth

Via Bloomberg.

Almost one-third of U.S. homeowners who bought in the last five years now owe more on their mortgages than their properties are worth, according to Zillow.com, an Internet provider of home valuations.


This is why pressure on home prices will continue until houses become affordable base on traditional measures of income to price, e.g. price is no more than 4 times income, monthly payment does not exceed 35% of income, etc. We still have a ways to go in some markets.

On a personal note, my family and a friend of ours took a Sunday drive, because gas prices are so cheap, to look at some of the sub-divisions in our area and to get an idea of what is available. The first house we stopped at was selling for about $345K and walking up to it it just looked terrible. The owner had gone through a divorce and had moved away and the yard was overgrown with weeds. It was a nice house but way over priced. The agent told me to make an offer if I was interested. The owner was hurting because he was paying out $2000/month. None of it was for lawn maintenance. I felt sorry for him.

When we got home I checked Zillow and found out that the house sold about 6 years ago for $260K. I felt a little less sorry for him. They obviously have a lot of equity in the home so why not lower the price. You see it is hard to come in and offer 20% under the asking price because you figure it is a waste of time. An insult. Bill O would not have this problem. It was a nice place but a little too big for our small family.

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