Six years after home prices peaked in the USA, families are still trapped. It’s getting worse, month by month. They cannot sell their homes in order to take better-paying jobs.
Think of the couple that bought a home in the Los Angeles suburb, La Puente. They paid $415,000. Then they took out a second mortgage. They owe a quarter million dollars more than it is worth. They will not escape.
To get out, they will have to walk away.
Either a foreclosure or a bank-assisted short sale would, in the best scenario, stain their credit rating and make it harder to buy a new home in the next few years. So they continue to pay monthly into a mortgage where they have no equity.
They worry about bad credit. But they will never get out from under. They are on the Titanic.
A staggering 11 million homes are underwater. Those families are trapped. They cannot move to get better jobs.
Homeowners in underwater mortgages do stay put, a recent study shows. They are one-third less likely to move.
But they could.
In contrast, a report issued last month by an economist at the Minneapolis Federal Reserve concludes that negative equity does not reduce homeowners’ mobility. The report says owners can still move if they find tenants to rent the property, and notes that homeowners who are deeply in the hole are more likely to move and abandon their homes than borrowers who are only slightly underwater. Read the study by a Minneapolis Fed economist.
Retired people are trapped.
John Shore, age 62, said he would like to retire and move to the central coast of California but can’t because he has to make mortgage payments on a home on the outskirts of Fresno, Calif., that is severely underwater. Shore said Social Security wouldn’t pay him enough to keep up with his health insurance and mortgage payments.
Shore, director at the Community Housing Council of Fresno, a housing counseling agency, said that anyone who bought a home in Fresno in the past seven years owes more than their home is worth and about 65% of homes are severely underwater.
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