Monday, May 18, 2009

Housing Crisis-35% of all mortgages are upside down

Here are some housing statistics that every investor in banks should understand. 

Let's start with some facts.

There are roughly 77 million homes in the United States.
Of these, 55 million homes are mortgaged.
Between 16 to 20.4 million homeowners owe more money than their house is worth.
Roughly 21% of all homes in America have negative equity.
Roughly 35% of all homes with mortgages are in a negative equity position.

Banks that wrote these mortgages sold them to Wall Street or Fannie and Freddie to wrap up in mortgage backed securities. However, there is an incentive for homeowners to simply leave their homes and file bankruptcy. This has a definite impact on banks, particularly in the credit card portion of their business.

Also, everyone should realize that the Federal Government is absorbing all of these losses in order to prop up the banking sector. The total losses could equal $2-5 trillion. The economy for the last 5 years relied on consumers using their homes as cash machines. This is going to affect future growth (retraction) in the economy.

Here are some supporting articles about the state of the housing crisis here and here.

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