Realtors, this is a great article from Option Arm Armageddon.ml.implode.com.

Here are the two take aways from this article:

1) The number of people who are ‘upside down’ in their homes is growing. Nearly 20% of all US homeowners are now…upside down in their homes.

2) The time is now to learn how to do short sales and loan mods. In areas of the US like Orange County US where OVER 50% of all home sales were shortsales and foreclosures knowing how to do short sales and loan mods are no required tools every agent must have.

3) In 2008 3 trillion in home equity was completely wiped out. 3 trillion!

Here is the article:

The homeownership rate is falling fast, as the chart nearby demonstrates.

I have “own” in quotes because I think the Census Bureau’s data misrepresents reality.

If a homeowner has a mortgage on his house, does he really “own” the house?  Well, sort of.  What he “owns” is the equity in the home over and above what he owes on the mortgage.  If the home is “worth” $500,000 on the market, and the homeowner still owes $400,000 on the mortgage, then he owns the incremental $100,000 of equity. In other words if this seller has to sell he will have to sell the home through a Short Sale. REALTORS: Watch the Agent Short Sale Secrets Video now. Download Your Free Agent Short Sale Secrets Book.

But if house prices fall 20% our owner’s equity is wiped out.  At that point, his equity is $0 and the only thing he “owns” is an obligation to pay the bank $400,000.  If he were to sell the house for $400,000 he would get nothing.  All the proceeds would go directly to the bank.  In other words, 100% of the home’s value is owned by the bank.

This discussion isn’t merely academic.  The Census Bureau’s definition of “homeownership” includes all households that aren’t renting.  Whether you own your house free and clear, whether your mortgage is 50% of the home’s current market value, or whether you owe more than your house is worth, for purposes of this chart the Census Bureau considers you an “owner.”

Juxtapose the above with this piece of news from HousingWire, also published today:

At the end of last year, Zillow estimates that one in six (17.6 percent) of all homeowners had negative equity; a number up from 14.3 percent at the end of Q3 2008.

Negative equity means the homeowner owes more than his house is worth.  For instance, the value of the home in our example above falls to $300,000, but the homeowner still owes $400,000.  In this instance, precisely what does the homeowner “own?”  The answer is simple: nothing.  He owns only an obligation to pay the bank $400,000.  He isn’t a “homeowner;” he is a “homeborrower.” REALTORS: Watch the FREE Agent Short Sale Secrets How-To Video.

An easier way to conceptualize this may be to compare our imaginary homeowner that owes $400k on a $300k house with his next door neighbor who also lives in a $300k house but who has paid off his mortgage in full.  The Census Bureau considers each person an “owner” even though, in reality, only the latter actually “owns” anything.

Another inconvenient fact: homeowners’ equity in their homes fell below 45% in Q3.  And that includes homeowners who have paid off their mortgage in full.  (data from Federal Reserve’s December Flow of Funds report—see line 51 on page 102).  This statistical series made big headlines last March when the rate dropped below 50% for the first time since WWII.  As home prices fall off a cliff, home equity falls even faster.

[E.g.  home price falls from $500k to $400k, a 20% decline.  Homeowner with $100,000 of equity at the higher value sees his equity go to zero, a 100% decline.  This is leverage in reverse.  It's why "de-leveraging" is so painful for those with debt.]

————–

George Bush came into office promoting his “ownership” society.  If more people felt they had an ownership stake in society, they might come to think of themselves as among the capitalist class, rather than as mere workers.  They might also start voting Republican.  One component of increasing “ownership” was to encourage more folks to buy their own home.  As The Nation wrote last January:

“Under 50 percent of African Americans and Hispanic Americans own a home,” Bush observed in 2002. “That’s just too few.” He called on Fannie Mae and the private sector “to unlock millions of dollars, to make it available for the purchase of a home”–an important reminder that subprime lenders were taking their cue straight from the top.

When Bush came to office, 67.5% of households “owned their home” according to the Census Bureau.  That rate made it as high as 69.2% by the end of 2004, when subprime mortgages were making the illusion of “ownership” possible for millions.  When Bush left office the rate had returned to 67.5%.

A more telling sign of the deterioration in homeownership during the Bush years is the decline in homeowner equity.  Q4 data is not yet available, but the rate stood at 44.7% as of Sept. 30th.  Where was it at the end of 2000 when Bush took office?  55.6%

The rate is likely to pass below 40% by the end of this year.

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