“In San Diego county, I think that it would be a HUGE stretch to say that 10% of homes are leveraged over 90% even at todays price.
I don’t know how many homes there are in the county.”
It is considerably more than 10%.
According to http://www.city-data.com there are around 550k owner-occupied houses and condos in the county.
According to bubbletracking.blogspot.com, 93k new and existing houses and condos were sold since 07/2005. Estimate 30k more houses sold during 1st half of 2005. Most likely, every one of these houses is worth less than they were paid for. 123k is 17% of all housing stock.
What mortgages did those buyers take?
* Around 80% were ARMs, more than 40% were interest-only or negative amortization
* Around 50% put 5% or less down out-of-pocket (CLTV >95%)
* Average nationwide CLTV was 91% in 2006, can’t find data for San Diego but it’s gotta be higher
So here you have 17% of houses that were leveraged to 90+% (average) back when they were bought. I’m not counting houses that were bought in 2004 and financed for 100% down; and I’m not counting houses that were refinanced in 2005-2006.
So, the correct statement would be “10% of homeowners are in negative equity land even at todays price.” Each one of these 10% is a foreclosure candidate. If prices were to fall further, this 10% can grow. It’s a vicious circle.
That’s the big problem we have today. When housing prices peaked in 2005, public did not yet accept the reality of the housing bubble, and lenders did not cut down on exotic mortgages. We were given 2+ years to build up a huge inventory of houses that were bought at sky-high prices for little or no money down, whose new owners won’t think twice about foreclosing if market corrects even by 20%.
