So as I guy I know said the other day, we can all relax. The worst is over. The banks have been saved (he's an Obama Democrat) and housing prices are starting to make a comeback.
Uh-huh.
I've said it before: all Obama did was buy us some time before the next round of mortgage bubbles started bursting and a new crisis develops. I didn't know how much time but Deutche Bank's Karen Weaver has a pretty good idea.
Last week, Deutsche Bank analyst Karen Weaver published a report that shook up the "housing is recovering" crowd. She predicted that, by next year, nearly half of American homeowners with mortgages will be underwater.
(emphasis added)
Being "underwater" means that with the housing market dropping, a LOT of people who bought houses at high prices in the Boom (because, after all, housing prices NEVER go down, right?) are suddenly going to discover that their home is worth a lot less than they owe on it. When that happened to people who bought new cars at the height of the Boom, they wound up abandoning the dawgs on the side of the road. Can't do that with a house. It means, of course, that we are going to be looking at a ton more of foreclosures.
Half of mortgage holders means about one-third of American households. Put another way, Weaver forecasts 25 million mortgage holders will be under water by 2011, up from an estimated 14 million currently.
Aside from the mega-bummer of owing the bank more than your house is worth, underwater mortgages exacerbate another problem: foreclosures. In previous housing busts, being underwater led to a greater likelihood of default, and Weaver believes this the foreclosure problem will be much worse this time around.
Not only haven't we seen the end of this thing, we haven't even seen the worst of it.
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