Of the eight million homeowners currently not making mortgage payments, six million are expected to lose their homes over the next two years, according to the latest Market Intelligence newsletter from John Burns Real Estate Consulting.
As a result, the national homeownership rate will fall to just 61.7 percent.
The numbers might be even worse if you factor in the additional five million homeowners with no equity in their homes, assuming they strategically default.
Fortunately, most borrowers don’t walk away voluntarily until equity falls to -62 percent of their home’s value, at least that’s how the study from the Federal Reserve goes.
You could also argue that homeowners with less than five percent equity in their homes could default as well, as you need an equity cushion to unload a home to pay for associated closing costs (and to buy a new one).
John Burns also noted that “loan modifications have little prayer of helping,” citing the fact that homeowners who received permanent loan modifications use more than 30 percent of their income to pay off debt other than the mortgage.
And we all know consumers prefer to pay their credit cards over their mortgages.
The sliver of good news is that 58 percent of homeowners can afford the median priced home vs. 45 percent historically.
Now if only anybody wanted one…