Welcome to West County, where they have a big home, their 2 BMW, sending kids to Private schools, members of the Golf Club, but have no furniture, can hardly afford to eat, have no savings, and are about to lose their 6 figure job when the next major corporation move to a more progressive area.

If you put little money down as your earnest money (down payment), then you are better off to walk away from your home if you find yourself underwater. It is predicted that 7 million foreclosures still have not hit the US market. This is the inventory that has not been unloaded onto the market. Also, there are more delinquencies and in-foreclosure process distressed properties combined than there are existing and new homes for sale on the current market. This suggest that trouble is coming to us down the road and inventory will balloon tremendously. It will rear its ugly head in the months to come. Unemployment is also a precursor to foreclosure.

Pay close attention to the details of housing information that is out there. Ask yourself the following questions:
1. What will happen when the federal tax credit goes away? Will home prices increase or decrease?
2. What about retired boomers who want to sell their homes? How many boomer homes are there? Will this increase the supply of homes on the market?
3. Where are all the qualified buyers interested in buying a home? When will the pool of buyers become small? Will the demand for housing decrease?
4. What about the shadow market (people who were too afraid to sell now and plan to sell in a couple of years)? How many homes will come onto the market from this shadow group?

I went against the norm and just bought something I could afford. Go figure.

Nick.

Good post but you left one very important issue out for the Locals.
Good luck in selling in the St. Louis market considering there are more jobs , of substance, moving out as well as companies comtemplating moving out, than jobs and business moving in. Therefore who will you be potentially selling to?

So, ignoring common economic sense has its consequences afterall. Who knew? Bye-bye beemer, hello Bi-state! Those who laugh the last, laugh the loudest.

Knowing what one can afford is a good way to avoid this. Banks still use an old formula that doesn’t take into account all the things most Americans pay for these days like internet, cable, cell phones. When we bought our current house, we knew what we could afford. The bank’s number was $75k more than that!! If we wouldn’t have been confident with our number, we, too, could be underwater now. We can actually own a house AND have furniture! What happened to the days of the 20% down payment? People aren’t so quick to walk away from their own investment. With no down payment, there is no pride in ownership plus paying PMI is another expense!

Your teaser sub-headline on the main page reads `sport’ instead of `report.’

“A new sport shows about 15 percent of St. Louis area mortgages are underwater.” Wow, is the editing that bad??? A new “sport”??? How about a new REPORT!!!???

nick, you hit it on the head, but forgot to mention other things that could lead to further foreclosures and delinquencies. Things like huge homeowner’s insurance increases (mine went up 37% mostly due to the May 2008 5.2 earthquake), increasing utility bills of all sorts, real estate tax rates rising or at least falling at a much lower rate than property values dropped, and people’s wages are stagnant to decreasing.

Many of the people who bought the option ARM loans were paying less than they could rent the house for, so it was a good deal. Why not ride it while it lasts and if it stops, I still got a better deal than paying rent! If there was no government interference, you couldn’t have had these bubbles as the free market would balance things out right away.

Greyshark1, we call what you speak of as “see through houses” they can’t afford curtain so you can see from the frontyard all the way to the backyard.
Rooney, basically a “black box” decides if a customer can afford a mortgage or not now. Fannie has Desktop Underwriter, Freddie has Loan Prospector and FHA has Total Scorecard. These “black boxes” take in consideration credit (not only how you pay but how you use credit), debt raitos, downpayment, cash reserves after closing, type of employment etc to render a decision. These computer models are very reliable in determining wether a mortgage will go into default. The one thing they CANNOT predict is the future and more importantly wether someone will have a job in 6 days, 6 weeks, 6 months or 6 years. Job loss is what is driving mortgage foreclosures at this time. Trust me when I tell you the foreclosures I see are due to loss of job, see AB, Chrysler, May Dept. Stores, KV Pharm and countless smaller businesses that have laid people off by the thousands. What I speak of relates to “A” paper mortgages and not the subprime garbage, I could have told you years ago the subprime industry would have come tumbling down. We underwriters have an old saying “what one has done in the past is what one is likely to to in the future”.