Feeling the Pain of US Homeowners

30 September 2011

One has to feel sorry for the US homeowners stuck in negative equity, especially those too morally grounded to make a strategic default (bailout) on their loan. Negative equity is when a home is worth less than the owner still owes on the loan used to buy it. This describes millions of Americans and, as it gets increasingly hard to find anyone not predicting further falls in prices in the short term, many more could join them.


Another hard sucker punch in the gut came yesterday from Robert Shiller, a professor of economics at Yale University and co-founder of MacroMarkets, he said that the US housing market "might not hit bottom for years".


In February Shiller, who is one of the author's of the Case-Shiller house price index, predicted that US house prices could fall a further 10 - 25 percent before hitting bottom, and he says he stands by that prediction.


"Expectations for home price performance in 2011 has become somewhat less negative. Unfortunately, the average projection is somewhat more negative for each of the following four years," he said.


The MacroMarkets home price expectations survey now says that home prices will grow at a mere 1.1% nominal average annual rate through to 2015.


Terry Loebs, founder of Pulsenomics, the firm that conducts the survey for MacroMarkets said:


"The erosion of price expectations in the face of record low mortgage rates and the wide dispersion of views among many professional forecasters are symptoms of persistent dysfunction and imbalances in this country’s housing market." So there.


Like pretty much every country in the world right now, you can't tar all of America with the same brush, some areas and even whole towns have hardly seen prices fall at all, and many more have seen a strong recovery since 2009-10, but in others the situation has gotten almost constantly worse. Suburban Joe maybe cutting his perfectly preened perennials and enjoying the stable value of his home in Pittsburgh, but High-flying Jake is sitting in his luxuriously furnished Las Vegas penthouse crying into his Bourbon about over-development, and wondering if his home will ever stop losing value.

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