Housing's Downward Spiral Continues

May 9, 2011

When home prices fall, more people find themselves underwater on their mortgage — they owe more than their home is worth. That leads to more foreclosures and short sales.

All those foreclosures and short sales drive property values down. So the number of people who are underwater on their mortgage increases. Etc.

In other words: Five years into the housing bust, the percentage of underwater mortgages is still rising. Of all single-family homes with outstanding mortgages, 28 percent were underwater in the first quarter of this year, according to figures out today from Zillow.

The cycle doesn't seem likely to break anytime soon. This morning's WSJ reports:

Mortgage companies Fannie Mae and Freddie Mac have sold more than 94,000 foreclosed homes during the first quarter, a new high that represented a 23% increase from the previous quarter. More could be on the way: They held another 218,000 properties at the end of March, a 33% increase from a year ago.

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