The Truth Behind American Homeowners

America is the land of opportunity. Unfortunately, bad business practices by many mortgage companies and banks throughout the nation has left us in a major economic slump.

Some friends of mine have been trying to sell their home in St. George, Utah for almost a year now. Their home is currently listed as “For Sale By Owner.” I personally couldn’t understand this move because home are sold much faster and much closer to the asking price if sold through a Realtor. As I was discussing this with my friend one day, she told me why they couldn’t go through a Realtor. They owned too much on their home and couldn’t afford to pay the 3 percent commission to a Realtor.

Similar situations are rising throughout the country. People can’t afford to stay in their homes, let alone sell it through a successful realty network, and are living on credit cards right now.. A recent study by The Wall Street Journal lets us know exactly how bad things really are. One in six homeowners owes more on their home than it is worth.

Can you believe that number? Just imagine how many friends you have. Now, think of that statistic and count how many of your friends are upside down on their mortgage. Because this statistic is so high, it also raises the statistic for the possibility of home loan defaults. In all seriousness, our economy really can’t handle any more defaults.

The number of homeowners that are upside down on their mortgage loans is putting more and more pressure on our already weakened economy. People aren’t going to be spending as much if the value of their home is drastically reduced. Why? Because people aren’t going to feel as “rich” and they will be forced to do a better job at expense tracking in seeing where every penny is going.

As the number of homeowners that owe more than their home is worth rises, the number of eventual foreclosures will also continue to rise. It is much harder to refinance or sell a home if the value of the home is less than the debt. People nowadays just aren’t in a financial position to come up with thousands of dollars in cash to pay off their mortgage loan. This will lead to more people having to simply walk away from their home and let it go into foreclosure. Every time a home is foreclosed on, it weakens the value of the other homes in the neighborhood.

Imagine this epidemic that is sweeping across the nation. Over 75.5 million households in the U.S. own their homes. The value of homes has been reduced by 30 percent in some areas. This means that 12 million people owe more on their home than it is worth. That is roughly the same as the entire population of New York City, Los Angeles and Chicago (the three largest cities in the United States).

Hopefully, the new bailout bill will help keep people in their homes. Luckily, the vast majority of Americans are still paying their mortgages on time and still have equity in their homes.

This entry was posted on Thursday, October 16th, 2008 at 8:54 am and is filed under credit. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.