June 7, 2011

Bursting Bubble Puts Mortgages Underwater

Numbers released today show that 38 percent of homeowners who took out a second mortgages are underwater on the home, which is 20 percent higher than those who didn't take out a second mortgage. Mercatus Center economist Anthony Sanders says that this number is not surprising, given the nature of the housing bubble.

“As housing prices accelerated, more and more households borrowed against the increased equity in their homes," said Sanders. “The lesson, of course, is for the federal government and the Fed not to encourage bubbles.”

“In some cases, home equity loans were used for vacations,” said Sanders. “Now, many houses are tapped out in terms of equity, and people are strapped with debt. This is not something that’s going to go away anytime soon.”

“The housing market is just not coming back, because of lack of credit available, and confidence is shot,” said Sanders. “There's not a lot of love for housing right now.”