Tag Archives: Chicago region

Prolonged housing issues: one-third of Chicago homes underwater

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The housing crisis of recent years is not just about foreclosures. The loss in housing value across the board means that many homeowners with mortgages owe more on those mortgages than their house is worth. This is a common occurence in the Chicago region where new data suggests one-third of homes are underwater, a rate almost ten percent higher than the national average:

Some 32.9 percent of all local single-family detached homes with mortgages were underwater in September, meaning the homeowners owed more on the loans than the properties are worth, according to new data from realty Web site Zillow.com. That compares with 30.9 percent in June and 27.2 percent in September 2009. The report does not include data on condominiums.

Nationally, 23.2 percent of homes have negative equity.

“Negative equity is going to continue to cast a pall over the housing market for the next several years,” said Stan Humphries, Zillow’s chief economist. “All these people are trapped in their homes and can’t move onto another one and it’s throwing off more foreclosures. For people who are not going to move anytime soon, it is much more of an academic issue. For people who need to move or who encounter an economic issue, it’s a material issue.”

I haven’t seen too many people speculating about the social consequences of this. Americans in the last 60 years have been fairly mobile people but these sorts of mortgage situations limits that. This may have consequences for job markets; even if there are jobs available elsewhere, fewer people are then able to pick up relatively quickly and move. On the other hand, it may lead to increased “feelings or perceptions of neighborhood” as more residents have to stay put longer than they would have even just five years ago.

Large “shadow inventory” lurking behind foreclosures

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While foreclosures have drawn a lot of attention, there may be yet another threat: the “shadow inventory” of homes where owners are at least one month delinquent on their payments.

In the eight-county Chicago area, 19 percent of mortgages — representing nearly 1 in 5 residential properties with a loan — are delinquent by at least one month, helping create an inventory of almost 204,000 homes at risk of reverting back to lenders, according to data provided to the Chicago Tribune by John Burns Real Estate Consulting in Irvine, Calif. That “shadow inventory,” as experts define distressed homes not yet put up for sale, is the largest in absolute terms for any metropolitan area in the country.

Based on its calculations, the firm believes that 80 percent of those homeowners eventually will lose their property, either through foreclosure or a short sale, in which the lender permits the home to be sold for less than the value of the loan.

If these figures are correct, or even close to correct, the housing crisis will continue for years to come as they properties eventually come up for sale. This will continue to have a strong effect on housing values and new building starts.

This could also have specific effects for the Chicago region. While most of the foreclosure attention seems to be focused on the Southwest and Florida, this data suggests many homeowners are teetering on the edge of keeping their homes.