This from Reuters.com today: The percentage of U.S. homeowners that owe more than their house is worth will nearly double to 48 percent in 2011 from 26 percent at the end of March as home prices continue to fall, according to Deutsche Bank. The biggest damage will be to so-called “conforming” loans that meet the standards of government-supported Fannie Mae (FNM) and Freddie Mac (FRE). 41% of conforming loans will be underwater by the first quarter of 2011, up from 16% at the end of the first quarter of 2009.
That follows the logic I laid out in my 11:57 post this morning. The first mortgages to go in a crisis are those to the least qualified borrowers. As the crisis rolls along these weaker borrowers get washed out first and to the degree that the houses they owned tend to be concentrated in specific neighborhoods and markets, the prices of that real estate falls first and hardest.
But as the crisis goes along and as the economy keeps sinking, better qualified borrowers start to give in and real estate in the places that have held up best finally starts to fall in value.
So cheer up. The fact that prime and conforming mortgages and the price of the homes they financed have finally joined the disaster is a good sign. It means we’re closer to the bottom.
Although as Wylie E. Coyote could tell you, it’s the bottom that really, really hurts.