CHESSNOID

The housing bust has really crushed a lot of homeowners.   Some of the prices of homes have deflated to the pre-bubble  years of 2000 to 2003.  The problem is many people bought there homes from 2004-2008 and during those years we had lenders doing liar loans with up to 0% down payments.  This is probably the biggest reason why people are underwater or have negative home equity on top of the paying the inflated prices.

Wall Street Journal:

The proportion of U.S. homeowners who owe more on their mortgages than the properties are worth has swelled to about 23%, threatening prospects for a sustained housing recovery.

Nearly 10.7 million households had negative equity in their homes in the third quarter, according to First American CoreLogic, a real-estate information company based in Santa Ana, Calif.

These so-called underwater mortgages pose a roadblock to a housing recovery because the properties are more likely to fall into bank foreclosure and get dumped into an already saturated market. Economists from J.P. Morgan Chase & Co. said Monday they didn’t expect U.S. home prices to hit bottom until early 2011, citing the prospect of oversupply.

Home prices have fallen so far that 5.3 million U.S. households are tied to mortgages that are at least 20% higher than their home’s value, the First American report said. More than 520,000 of these borrowers have received a notice of default, according to First American.

In the same article, it states that under the old method of calculation it is even as high as 1 in 3 people underwater.

The latest First American data aren’t comparable to previous estimates because the company revised its methodology. First American now accounts for payments made by homeowners that reduce principal, and it no longer assumes that home-equity lines of credit have been completely drawn down.

The changes reduced the total number of borrowers under water — although both old and new methodology show increases from the previous quarter. Using the old methodology, the portion of underwater borrowers would have increased to 33.8% in the third quarter.

To add insult to injury, during those times the government even took property by eminent domain.  Watch the video below:

Economic progress really a bust