Upside Down Mortgages Could Get Worse

As signs of price stability in the housing market appear throughout the country, the areas most hit by the downturn still face an overwhelming number of under water mortgages.

While these markets saw a tremendous increase in home values between 2002 and 2005, many home buyers jumped for the opportunity to get in, with many purchasing their homes at the peak of the market. It should come of no surprise that these same locations have now become the source of most home owners who are upside down pm their mortgages.

Those familiar to Chula Vista have seen first hand the over development of homes that occurred during the housing boom specifically to the East with prices easily reaching the million dollar mark. Chula vista home values are down on average of 40% since the peak in March of 2005.

Although many first time buyers and investors have been competing to purchase low priced properties, causing home values to stabilize, those home owners still owe way more than the current value of their homes.

So the questions is what will happen with all these upside down borrowers?

Well, as long as these homeowners continue to make their mortgage payments, continue to want to keep their homes, knowing very well they will have to wait quite some time for the market to rebound for their home equity to gradually return, these borrowers are no different than any other.

But what about those that can no longer afford their mortgage payments and do not qualify for a loan modification?

Even with loan modifications helping reduce their payments, often by lowering their interest rate, some homeowners don’t believe they will ever have equity again and see no reason to continue making payments, whether or not they can and choose to devastate their credit rather than be strapped to a property that will be a liability for many years to come.

As the first time home buyer tax credit and the Federal Reserves low interest rates are both set to expire mid 2010, I hope the recovery is well underway and will be able to sustain itself beyond that. Should it not, we may be poised for another dip in home values setting the stage for perhaps another massive blow in the overall economic recovery of our country.

About Daniel Di Matteo

Realtor at CENTURY 21 Award, Daniel was Voted U-T San Diego’s Best Real Estate Agent in 2014. A Husband, Father, and most recently, accomplished Blog writer, which explains your visit today.