Compounding an overall weak economy, the failing U.S. housing market continues to stand in the way of any real recovery and some analysts are saying things are actually much worse than what is being reported. Research from several mortgage analysts has been in the news lately suggesting that the equity position of U.S. homeowners is far worse than the official tallies would have you believe and that over 50% of all mortgaged homes are underwater, meaning the owners cannot sell their homes for a price high enough to cover the Realtor fees and the down payment without coming out of pocket.
As home prices drop, more borrowers are trapped in a negative equity position where they owe more on their mortgages than their homes are worth. Some analysts believe the demand for homes has not come back due to a lack of repeat buyers and the situation is similar to a scenario where half of the potential home buyers in the nation died in just the last two-years. Although the numbers reported in the news have repeatedly stated that about 14.6 million U.S. homeowners are currently underwater, the number is likely higher because it doesn’t factor those borrowers who have so little equity in their homes that they cannot afford to move.
The analysts also make the point that those are the borrowers who are already behind on their mortgage payments, and some are probably already in the process of foreclosure. Many of the rest are in danger of defaulting because they don't see any appreciation in their investment ahead and any changes in economic or personal situations might also force other homes into default.
The market needs to see activity in order for housing to recover and the widespread negative equity is causing stagnation instead. A few analysts have argued that principal forgiveness on the part of the banks would help solve the problem, but others caution that principal forgiveness would be costly at best and catastrophic if it created more new strategic defaulters than the number of homes it saved from foreclosure.
