Half of the US will be backwards on their mortgage by 2011
This is quite the statement. It speaks to the predicament that so many find themselves in, often wondering how it happened or how to get out of it.
There is no really easy or polite way to say this. Debt is slavery. The book I read says the borrower becomes servant to the lender.
Yes, great, thanks for pointing that out…, how does that help me?
The first step to fixing any problem is identifying the problem and then admitting it is a problem in the first place. A problem that you are responsible for, because its your decisions that got you there. Yes, I know, the current mess in the credit markets was not your fault. But you did sign on that loan.
So what the heck to do now?
Many people feeling the hurt from the economy right now are feeling it because the foundation of their financial house has been built on sand instead of rock. The average person thinks that debt and paper products (stocks etc) should form the foundation of a financial house. The problem is that this is like a foundation built on sand. When the storms come, the house falls over, or at least becomes unstable enough to become stressful. Fear sets in, and even worse decisions than were made to get you into the predicament in the first place happen.
So what is a foundation build on rock then? I would suggest its a foundation built on savings. And not just any savings, but savings in a form that doesn’t devalue nor can it be taken from you (see gold). More importantly, many people often confuse what savings is for. The cliche saying of ’savings for a rainy day’ indicates that the common thought regarding savings is that it should be used for catastrophes and emergencies only. But that is not the way the world works in terms of storehouses.
A farmer tills soil and sows seeds, after a time, he sees a harvest. This is the natural cycle. Yet many people ignore the other part of the natural cycle. The harvest is placed into a storehouse. This storehouse represents a reservoir to draw on, and a financial storehouse works the same way. Not only can the reservoir be drawn on in time of need, but it also provides the feedstock with which to sow again into your financial future. Finally, and perhaps most importantly, it gives you peace of mind knowing the storehouse is there.
I read recently the average American family will last 18 days if their primary means of income were to cease. This represents an extremely small storehouse, and a foundation built on sand. To me, a financial foundation is when you have a set amount of expenses, and you figure out how much you need to pay your monthly expense for an extended period of time. 3 months. 6 months. 1 year. 5 years. 10 years.
If you knew you have 1 years worth of expenses covered by your financial storehouse, even if your income were to stop for a period of time while you created another income stream, would you sleep well at night? My guess is you would.
This peace of mind allows you to make good decisions, not decisions based on emergency, fear, or stress. Especially in times like these. The amazing part about this idea is that not only can you make decisions calmly and intelligently, but you can actually see the areas where its possible to take advantage of opportunities you would not normally see during an economy in crisis, and profit while most people are going backwards.
The foundation is no debt, and a storehouse of wealth.
For those who have the ears to hear it, I also recommend a good chunk of that storehouse be in physical gold or silver, with a means of liquidating it if needed. This only adds to your peace of mind.
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About half of U.S. mortgages seen underwater by 2011
NEW YORK (Reuters) – The percentage of U.S. homeowners who owe more than their house is worth will nearly double to 48 percent in 2011 from 26 percent at the end of March, portending another blow to the housing market, Deutsche Bank said on Wednesday.
Home price declines will have their biggest impact on prime “conforming” loans that meet underwriting and size guidelines of Fannie Mae and Freddie Mac, the bank said in a report. Prime conforming loans make up two-thirds of mortgages, and are typically less risky because of stringent requirements.
“We project the next phase of the housing decline will have a far greater impact on prime borrowers,” Deutsche analysts Karen Weaver and Ying Shen said in the report.
Of prime conforming loans, 41 percent will be “underwater” by the first quarter of 2011, up from 16 percent at the end of the first quarter 2009, it said. Forty-six percent of prime jumbo loans will be larger than their properties’ value, up from 29 percent, it said.
“The impact of this is significant given that these markets have the largest share of the total mortgage market outstanding,” the analysts said. Prime jumbo loans make up 13 percent of the total market.
Deutsche’s dire assessment comes amid a bolt of evidence in recent months that point to stabilization in the U.S. housing market after three years of price drops. This week, the National Association of Realtors said pending home sales rose for a fifth straight month in June. A widely watched index released in July showed home prices in May rose for the first time since 2006.
Covering 100 U.S. metropolitan areas, Deutsche Bank in June forecast home prices would fall 14 percent through the first quarter of 2011, for a total drop of 41.7 percent.
The drop in home prices is fueling a vicious cycle of foreclosures as it eliminates homeowner equity and gives borrowers an incentive to walk away from their mortgages. The more severe the negative equity, the more likely are defaults, since many borrowers believe prices will not recover enough.
Homeowners with the riskiest mortgages taken out during the housing boom have seen the greatest erosion in equity, in part because they were “affordability products” originated at the housing peak, Deutsche said. They include subprime loans, of which 69 percent will be underwater in 2011, up from 50 percent in March, Deutsche said,
Of option adjustable-rate mortgages — which cut payments by allowing principal balances to rise — 89 percent will be underwater in 2011, up from 77 percent, the report said.
Regions suffering the worst negative equity are areas in California, Florida, Arizona, Nevada, Ohio, Michigan, Illinois, Wisconsin, Massachusetts and West Virginia. Las Vegas and parts of Florida and California will see 90 percent or more of their loans underwater by 2011, it added.
“For many, the home has morphed from piggy bank to albatross,” the analysts said.
http://news.yahoo.com/s/nm/20090805/bs_nm/us_usa_housing_deutschebank
