Housing Market Recovery? Deutsche Bank Not Buying It

To those who think that the US housing market is starting to recover - Deutsche Bank begs to differ.

Karen Weaver and Ying Shen of Deutsche Bank released a report earlier today in which they predicted that up to 48% of all US homeowners with a mortgage will be "underwater" by Q1 2011.

What is an "underwater" mortgage?

An "underwater" mortgage occurs when a homeowner owes more to the bank than what their home is worth.

So, for instance, let's say that you bought a home in California at the height of the housing boom. Let's say that you paid $700,000 for the house, and ended up taking a $600,000 mortgage.

The value of this home, for argument's sake, has now declined to $450,000, and you currently still owe $578,000 on the mortgage.

This would mean that you are currently "underwater" on this mortgage, as you owe more than what the house is worth.

According to the report, 26% of all US homes with a mortgage were "underwater" at the end of Q1 2009.

If Deutsche Bank's prediction is accurate, then this would mean that a full 25 million US homes would be "underwater" by the end of Q1 2011.

The bad news doesn't end there. Deutsche Bank also predicted that:

-90% of borrowers in seven real estate markets (including Las Vegas, Miami and others) will be underwater by 2011

-28% of all US homeowners with a mortgage will owe more than 125% of their property's value by 2011

-home prices are set to decline another 14%

-69% of subprime loans will be underwater by 2011

Deutsche Bank believes that default levels will continue to ramp higher while people continue to deal with a litany of different issues. They also believe that many people will continue to voluntarily walk away from their homes, rather than continue to make mortgage payments on a home that is "underwater".

This trend, according to Deutsche Bank, will continue to depress home values in the United States through 2010.

Source: Bloomberg.com - "Underwater" Mortgages to Hit 48%, Deutsche Bank Says

Filed under: The Economic Meltdown