A rising tide of ‘underwater’ homeowners: 1 in 6 now owe more than homes worth

[Liberal_in_LA]

http://www.msnbc.msn.com/id/27089919/

A rising tide of ‘underwater’ homeowners
1 in 6 now owe more on their mortgage then their property is worth

"It is very possible that there will ultimately be more homeowners underwater in this period than any time in our history," says Mark Zandi, chief economist for Moody's Economy.com.

updated 2:58 p.m. PT, Wed., Oct. 8, 2008

The relentless slide in home prices has left nearly one in six U.S. homeowners owing more on a mortgage than the home is worth, raising the possibility of a rise in defaults — the very misfortune that touched off the credit crisis last year.

The result of homeowners being "underwater" is more pressure on an economy that is already in a downturn. No longer having equity in their homes makes people feel less rich and thus less inclined to shop at the mall.

And having more homeowners underwater is likely to mean more eventual foreclosures, because it is hard for borrowers in financial trouble to refinance or sell their homes and pay off their mortgage if their debt exceeds the home's value. A foreclosed home, in turn, tends to lower the value of other homes in its neighborhood.