The HSH Blog

Mortgage & Housing Market News from HSH.com
August 6th, 2009 (Modified on August 10th, 2009)

48% of Homes Under Water by 2011



The number of under water borrowers, or those who owe more on their home loan than their property is worth, will increase to 48% by 2011, said Deutsche Bank yesterday. Deutsche says the number, which by their estimates will nearly double in about two years, will encompass a new class of borrowers, prime:

“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.

Why Prime Loans?

When the housing crisis began, states were ravaged by the subprime failures; in the months and years since, that wave of subprime foreclosures has broken and rolled back. Lenders have all but ceased issuing anything subprime, and beside FHA loans, prime — whether conforming or jumbo — became the main option for most borrowers.

Since then, the flagging economy has caused millions of job losses, fueling more loan failures especially among “prime borrowers.” Furthermore, falling home prices have seen some homeowners “walk away” from their homes that were so far under water that even getting back to a zero equity level was impossible anytime soon. This is a classic case of “good borrowers gone bad”:

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.

When Will Primes Recover?

Within recent months, housing statistics have been consistently improving. While Reuters does classify Deutsche’s report as “another blow to the housing market,” several other housing reports have begun to show a true reversal in the real estate downturn. We wonder, with an improving economy and firming housing markets (and hopefully more of the same by 2011), how did Deutsche arrive at their conclusions?

While Federal housing incentives tend to cater to first-time, mostly conforming borrowers, some experts have begun to say that the high-end markets have missed out on the budding rebound. The high-end market is a small but important portion of the housing market:

The divide between the mass market and the high-end — generally defined as homes that cost above $750,000 — partly reflects the effects of Washington’s housing-rescue plan, which is producing winners and losers.

Policymakers have helped spur sales of lower-priced homes by offering first-time buyers a federal tax credit of as much as $8,000, by driving mortgage rates to near 50-year lows and by expanding the mission of the Federal Housing Administration, which will guarantee mortgages for consumers buying homes with down payments as low as 3.5%.

Do you think Deutsche’s report is accurate, inaccurate, or way off base? What do you think the state of the housing market be in 2011?

For more, check out the following story:

Home Prices: The Statistic That Matters Most?

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8 Responses to “48% of Homes Under Water by 2011”

  1. Mitch Says: August 7th, 2009 at 1:41 am

    I have three thoughts.

    One, it was irresponsible for Deutsche Bank to put out such a story.

    Two, it was irresponsible because they’re basically saying 9 states will suffer more than the other 41 states will survive and thrive, without taking into account that their foreclosure rates are slowing, and even if the continue to slide, the numbers have to drop, probably within 9 months, because what’s going to be left to foreclose upon.

    Three, across the country, the price of homes went up .5%, and if that continues it should negate even further this estimate that they came out with.

    At least I hope so.

  2. Tim Manni Says: August 7th, 2009 at 4:07 pm


    One: I agree.

    Two: Exactly, states like California and Florida, even Nevada are on the mend.

    Three: Exactly…I think improving conditions have been occurring most consistently in housing, more so above other marketplaces.

    Good hearing from you Mitch, thanks,

  3. Ken Says: August 7th, 2009 at 7:51 pm

    I would like to know what amount (homeowners) the 48% is a part of. 485 sound like a large number but if it is only 48% higher than 100 , the actual amount of homeowner underwater is small.

  4. Tim Manni Says: August 10th, 2009 at 10:46 am


    First, as we wrote in the post, we’re not sure how Deutsche Bank arrived at the number of 48%, we felt as though we wouldn’t be in that bad of shape by 2011 as they supposed. By their calculations, underwater homeowners will more than double in about two years.

    Secondly, however, I’m not sure I under your question or your math… If Deutsche’s prediction turns out to be correct, if 48% of homeowners (almost half of all homeowners) are underwater, that’s not good! Furthermore, 485 is not 48% higher than 100, so that comparison doesn’t tell the story.

    I’m not sure how many homeowners there are in the U.S., but if nearly half are underwater in about two years, the market will have only gotten worse, and done so in an astoundingly rapid manner. According to Zillow.com, in July 22% of all homeowners are underwater.

    Thanks for commenting,

  5. Esko Kiuru Says: August 10th, 2009 at 10:41 pm


    This Deutsche Bank report is an estimate, so it could be off on the high or low side. Still, the under water percentage in the near future is bound to grow as unemployment predictably stays rather high for now and more foreclosures will occur. Even if it clocks in only at 33% nationally, it’ll be quite harmful to the economy.

  6. Tim Manni Says: August 11th, 2009 at 12:44 pm

    Hey Esko,

    Great hearing from you. Oh, there’s no doubt about it — the number of underwater borrowers is certainly harmful to economic recovery. We just thought, compared to the current number, that it seemed high.


  7. Ken Says: August 21st, 2009 at 6:24 am

    Can I sell my house back to the bank @ their balance sheet model price or do I have to mark it to the market since I don’t live or work in DC or Wall ST?

  8. Tim Manni Says: August 21st, 2009 at 11:32 am


    I can’t say I really understand what you’re asking here? What are you trying to accomplish?

    Do you want to get rid of your home? If so, you can sell it for a price that the market dictates (aka what the other like homes are selling for in your area). If your interested in turning it over to your bank, that’s called a “deed in lieu,” where you sell it back to them for whatever’s left on your loan balance.

    Can you give us some for info so we can help you further?

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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