Under Water But Will They Leave The Pool?

This is the title of an article I just read in the New York Times. Click here to see the article

The author asks why, if so many people are under water, are they dutifully paying their mortgage loans? He gives the example that it is estimated that 2/3 of owners in the Las Vegas area are under water, but most continue to pay on their loans.

There seems to be a lot of press lately on home values rebounding. In my opinion, if “millions” of Americans are underwater, how will they get out from under their homes without a short sale or forclosure? Perhaps these people are hoping that even though the average increase in home values over the past 50 years was 5%, that we will magically return to the late 2000’s where values rose 20%, 50% or even 100% in one year andanyone could be a real estate investor “genius”. I just don’t see that happening again in my lifetime. It’s this “shadow” inventory of distressed property thatconcerns me. Aside from the article in this morning’s New York Times, it seems that this fact is the elephant in the room that no one wants to acknowledge. In Park City, where I do business, we are seeing developers lower the prices of their inventory to cost or below cost just to move it. If they thought prices were going to magically rebound, wouldn’t they wait it out?

Most people stay in their homes 5-7 years, which meanswe canexpect to see the greatest amount of distressed properties hit the market between 2009-2014. Nevertheless,there are still some great real estate purchase opportunities out there and as long as someone is willing and able to hang on for 5 years,they probably won’t lose money. I just don’t see a huge rebound in prices coming any time soon.

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