Actually, surprise really is not the correct term. A number of people and rating agencies have stated for about a year that by 2011 one in four mortgages would be underwater – that is the borrower owes more than the property is worth.

First American CoreLogic, a real estate information company, now says that 10.5 million households have negative equity in their property. For those who claim the residential real estate market have bottomed, think again. Let us deal out a few reasons why.

The case for the next leg down in real estate

1. Foreclosures are making record highs each month. This means there will continue to be extra inventory on the market, pushing down prices
2. People with negative equity – especially large amounts – will start walking away from their property (see point number 1)
3. $110 Billion in Adjustable Rate Mortgages will reset in the next two years. Seeing a large portion of borrowers cannot refinance as it is, a wave of ARMs resets will cause pressure on borrowers again leading to people being unable to pay their mortgage.
4. Unemployment is expected to remain high over the next several years. If jobs are hard to come by, how can people pay their mortgage? (again, see point 1)

What I find interesting is that 11% of people who took out mortgages in 2009 ALREADY owe more than what their property is worth. If that is not a sign that the market continues to trend downward I don’t know what is.

Related posts:

1. Subprime mortgages were an issue, but now so are the “prime”
2. The “refinancing rush” due to plunging interest rates?
3. 12% are behind on their mortgage or in foreclosure
4. Is a third Depression on the way?
5. Moody's: Commercial Mortgages Going Bad At Record Pace