How can we have a V shaped recovery if housing is upside down?

By Andy Kroll | Tue September 1, 2009 1:15 PM PST
Mother Jones


Although a few glimmers of hope for the housing market have shown through as of late, several new reports concerning houses with "underwater" mortgages—when a homeowner owes more than the total value of his or her home—foresee bleak times that could undermine a full economic recovery.

Moody's Economy.com found that 24 percent of all US homes are currently underwater, a 15 percent jump from a year ago, while 8 percent of homes have debt equal to the home's value. Online real estate site Zillow similarly calculated in its own report that 23 percent of homes were underwater. A Moody's analyst told The Washington Independent that her firm's findings mean about 16 million homes are underwater, adding that "Home prices have increased in the last month or two but I think it's too early to call an end to the downturn."

More ominous, though, is a recent projection by Deutsche Bank that a whopping 48 percent of all US home mortgages will be underwater or "upside-down" by early 2011.

The fear with these kinds of statistics is that they'll stunt a more vigorous economic rebound here in the US. The housing market—as the Great Housing Meltdown so painfully illustrated—is inextricably linked to broader economic health, and if staggering totals of underwater mortgages continue to pile up, that will seriously blunt recovery efforts to turn the economy around, like stimulus spending. It also doesn't help that the goverment's mortgage relief efforts—like the largely flawed Home Affordable Modification Program—have done little so far, as the recent Hope Now statistics show.

Yet apart from these relief programs, experts admit that the only way to deal with underwater mortgages is to sit back and wait—which doesn't bode well for a V-shaped recovery anytime soon. (Think more of a W.)

(The higher probability is a livin 'L.-AM )

"For the most part, we have to let it happen. We needed a correction," Deutsche Bank’s Karen Weaver told The Washington Independent. "And, as we let the crisis play out, shore up the rest of the economy with low rates and government stimulus."