Treading water with upside down mortgages

Marquita Shealey is having tough time after the Lithonia house she bought lost more than half its value in two years.

The loss put the 29-year-old first-time buyer in the same position as about 70 percent of metro Atlantans who are younger than 4o with a mortgage. She is upside down, or owes more on the mortgage than the worth of the home, according to California real estate and data firm Zillow.

For younger buyers, especially those trying to relocate or just sell a home, it is a financial hardship that ripples through the economy, cutting into sales at department stores, stifling hiring and and pulling down other home values.

In Shealey’s case, she can’t sell and take a loss and has also suffered some other financial hits, such as expensive home repairs and a split with the man with whom she bought the house. So she is stuck in a home that suppresses her ability to flex with new financial constraints. She cut back spending and is considering pulling her daughter out of private school.

“I thought once I closed, everything would be smooth sailing,” Shealey said. “Now everything is on me.”

Zillow economist Stan Humphries said younger buyers typically paid low down payments, have little equity in the home and are more likely to have purchased in the last ten years as home prices hit a peak. Home values dropped on average about 35 percent here since 2006.

Younger buyers typically are at the beginning of their careers, earn less than older counterparts and have amassed fewer assets that may help them get through tough times.

Humphries noted that being underwater on a loan can prohibit a young worker from moving to a new location for a better paying job, because they can’t afford to sell at a loss.

If owners can’t sell, it creates a secondary effect up and down the economic ladder. There are fewer available homes on the market for willing buyers. Being underwater also retards the ability of homeowners to sell and move up, a traditional strong sector of the housing market.

“It does gum up the inner workings of the housing market,” Humphries said.

The frustration of being stuck in a house encourages homeowners to default to get out of the payment, causing more foreclosures in the housing market and depressing everyone’s home values.

Georgia real estate investor Bob Massey said he has friends with one child who want to sell their small house and move to a more spacious home, but they cannot because they are underwater. The couple is holding off having a second child.

Another friend in the military moved here from Maryland but cannot sell his underwater home there. If they are able to rent it, the income will still be less than the mortgage payment and the couple will have to make up the difference.

“Here is a young couple spending an extra $400 or $500 a month and trying to keep his credit clean because it affects his job,” Massey said.

“If he did a short sale, it would affect his credit and he can’t get loan for another three or three years,” he said. “It really makes for difficult situations for families.”

Humphries said despite the difficulties, about 92 percent of homeowners are staying current on their payments. Being underwater does not mean that those homeowers will soon be among the foreclosed-upon.

And being underwater may not be a big deal to older home-buyers settled into metro Atlanta long-term. They typically bought years ago when prices were lower and have built up equity which lowers what they owe.

About half of metro Atlanta mortgage holders over 40 are underwater, he said. If older owners don’t have a disaster such as a job loss and had no plans to move, they are less affected because they can wait for prices to come back, Humphries said.

The national average of underwater owners is 31 percent. Metro Atlanta has been hit harder than many cities by the bursting housing-and-loan bubble.

Clayton is hit hardest in the region. It is in the worst 1 percent of counties nationally, Zillow’s numbers say, with 83 percent of mortgages underwater. Even well-off Forsyth, which had an $87,605 median income in 2011, is in the lowest 20 percent of counties.

Zillow got the information by giving estimated home values to credit information company TransUnion, which matched the estimated values against known mortgage balances at those addresses.

This spring and summer’s rise in home prices has helped east the problem.

Those underwater are a mix of people who have lost jobs and are having a difficult time financially and those who can afford their monthly payments, but resent paying top dollar for a languishing investment.

“I meet with a lot of people who are upside down and for most part can afford the payments. And a lot are looking for an easy way out,” said Bartow County real estate agent Bill Cook.

“They don’t want to pay … is there a way around it? Really there isn’t. And then you have some who can’t afford the payments, they get behind on the mortgage. Their first line of defense is to try to do a loan modification,” Cook said.

But if owners cannot get modifications, they often try a short sale, when a bank agrees to take less than the value of the mortgage for a payoff. Short sales negatively affect the values of nearby homes.

Massey, the real estate investor, said, “The marketplace ends up being predominantly short sales and they are down-and-dirty prices and it drags down everyone’s prices. It’s a spiral that keeps going and going.”

Short sales and foreclosures have been at times more than half of all sales in metro Atlanta in the last year, but that number is trending down.

Chris Lazarus, a salesman with Atlanta’s Sellect Realty in Marietta, said about one in five of all listed homes in late August were short sales.

Marquita Shealey is going to try to hang on to her home. She has learned a lesson from her elders, she said.

”I have seen older people stick it out. Now they are sitting on equity,” she said. “I have learned to sit and be still. Everything is not going to always be so bad.”

County/    % mortgages underwater/median home value*

Clayton 83 $45,200

Paulding 69 $83,400

Douglas 69 $75,600

Gwinnett 58 $117,100

DeKalb 56 $96,300

Fulton 47 $139,500

Cobb 46 $141,800

Cherokee 46 $146,900

Forsyth 36 $204,200

Fayette 34 $177,000

*Source: Zillow Negative Equity Report

Check out Zillow’s estimate of underwater mortgages in your zip code here,

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