MIL­LIONS OF AMER­I­CANS STILL TRAPPED IN DEBT-LOGGED HOMES AF­TER 2008 CRI­SIS

The Gulf Today - Business - - SPECIAL REPORT -

School bus driver Michael Payne was rent­ing an apart­ment on the 30th floor of a New York City high-rise, where the land­lord’s idea of fix­ing bro­ken win­dows was to cover them with boards.

So when Payne and his wife Gail saw ads in the tabloids for brand-new houses in the Pennsylvania moun­tains for un­der $200,000, they saw an es­cape. The mid­dle-aged cou­ple took out a mort­gage on a $168,000, fourbed­room home in a gated com­mu­nity with swim­ming pools, ten­nis courts and a club­house.

“It was go­ing for the Amer­i­can Dream,” Payne, now 61, said re­cently as he sat in his liv­ing room. “We felt rich.” To­day the pow­der-blue split-level is worth less than half of what they paid for it 12 years ago at the peak of the na­tion’s hous­ing bub­ble.

Lo­cated about 80 miles north­west of New York City in Mon­roe County, Pennsylvania, their home re­sides in one of the sick­est real es­tate mar­kets in the United States, ac­cord­ing to a Reuters anal­y­sis of data pro­vided by a lead­ing realty track­ing firm.

More than one-quar­ter of home­own­ers in Mon­roe County are deeply “un­der­wa­ter,” mean­ing they still owe more to their lenders than their houses are worth.

The world has moved on from the global fi­nan­cial cri­sis. Hard­hit ar­eas such as Las Ve­gas and the Rust Belt cities of Pitts­burgh and Cleveland have seen their for­tunes im­prove.

But the Paynes and about 5.1 mil­lion other US home­own­ers are still liv­ing with the fall­out from the real es­tate bust that trig­gered the epic down­turn.

As of June 30, nearly one in 10 Amer­i­can homes with mort­gages were “se­ri­ously” un­der­wa­ter, ac­cord­ing to Irvine, Californiabased ATTOM Data So­lu­tions, mean­ing that their mar­ket values were at least 25 per cent lower than the bal­ance re­main­ing on their mort­gages.

It is an im­prove­ment from 2012, when av­er­age prices hit bot­tom and prop­er­ties with se­vere neg­a­tive eq­uity topped out at 29 per cent, or 12.8 mil­lion homes. Still, it is dou­ble the rate con­sid­ered healthy by real es­tate an­a­lysts.

“These are the hous­ing mar­kets that the re­cov­ery for­got,” said Daren Blomquist, a se­nior vice pres­i­dent at ATTOM.

Lin­ger­ing pain from the crash is deep. But it has fallen dis­pro­por­tion­ately on com­muter towns and dis­tant ex­urbs in the eastern half of the United States, a Reuters anal­y­sis of county real es­tate data shows. Among the hard­est hit are bed­room com­mu­ni­ties in the Mid­west, mid-at­lantic and South­east re­gions, where in­come and job growth have been weaker than the na­tional norm.

De­vel­op­ments in out­ly­ing com­mu­ni­ties typ­i­cally suf­fer in down­turns. But a come­back has been harder this time around, an­a­lysts say, be­cause the home­price run-ups were so ex­treme, and the economies of many of these Mid­west­ern and Eastern metro ar­eas have lagged those of more vi­brant ar­eas of the coun­try.

“The mar­kets that came roar­ing back are the coastal mar­kets,” said Mark Zandi, chief econ­o­mist at Moody’s An­a­lyt­ics. He said land re­stric­tions and sales to in­ter­na­tional buy­ers have helped buoy de­mand in those ar­eas.

“In the mid­dle of the coun­try, you have more flat-lined economies. There’s no sup­ply con­straints. All of these things have weighed on prices.” In ad­di­tion to ex­urbs, mil­i­tary com­mu­ni­ties showed high con­cen­tra­tions of un­der­wa­ter homes, the Reuters anal­y­sis showed. Five of the Top 10 un­der­wa­ter coun­ties are near mil­i­tary bases and boast large pop­u­la­tions of ac­tive-duty sol­diers and veter­ans.

Many of these fam­i­lies ob­tained fi­nanc­ing through the US Depart­ment of Veter­ans Af­fairs. The VA makes it easy for ser­vice mem­bers to qual­ify for mort­gages, but goes to great lengths to pre­vent de­faults. It is a big rea­son many mil­i­tary bor­row­ers have held on to their neg­a­tive-eq­uity homes even as mil­lions of civil­ians walked away. A poor credit his­tory can threaten a sol­dier’s se­cu­rity clear­ance.

And those who de­fault risk never get­ting an­other VA loan, said Jackie Hal­ibur­ton, a Veter­ans Ser­vice Of­fi­cer in Hoke County, North Carolina, home to part of the gi­ant Fort Bragg mil­i­tary in­stal­la­tion and one of the most un­der­wa­ter coun­ties in the coun­try.

“You will keep pay­ing, no mat­ter what, be­cause you want to make sure you can hang on to that ben­e­fit,” Hal­ibur­ton said.

These and other ca­su­al­ties of the real es­tate melt­down are easy to over­look as homes in much of the coun­try are again fetch­ing record prices.

But in Un­der­wa­ter Amer­ica, home­own­ers face painful choices. To sell at cur­rent prices would mean ac­cept­ing huge losses and lay­ing out cash to pay off mort­gage debt. Leasing these prop­er­ties of­ten won’t cover the own­ers’ monthly costs. Those who de­fault will trash their credit scores for years to come.

DREAMS DE­FERRED

Spe­cial ed­u­ca­tion teacher Gail Payne noses her Toy­ota Rav 4 out of the drive­way most work­days by 5am for the two-hour ride to her job in New York City’s Bronx bor­ough.

“I hate the com­mute, I re­ally, re­ally do,” Payne said. “I’m tired.” Now 66, she and hus­band Michael were count­ing on eq­uity from the sale of their house to fund their re­tire­ment in Florida. For now, that re­mains a dream.

The Paynes’ gated com­mu­nity of Penn Es­tates, in East Stroudsburg, Pennsylvania, is among scores that sprang up in Mon­roe County dur­ing the hous­ing boom.

Prices looked ap­peal­ing to city dwellers suffering from ur­ban sticker shock.

But new­com­ers didn’t grasp how ir­ra­tional things had be­come: At the peak, prices on some homes bal­looned by more than 25 per cent within months.

To­day, homes that once fetched north of $300,000 now sell for as lit­tle as $72,000. But even at those prices, empty houses lan­guish on the mar­ket. When the easy credit van­ished, so did a huge pool of po­ten­tial buy­ers.

Eight hun­dred miles to the west, in an un­in­cor­po­rated area of Boone County, Illi­nois, the Can­dlewick Lake Home­own­ers As­so­ci­a­tion be­gins its monthly board meet­ing with the Pledge of Al­le­giance and a prayer.

Nearly 40 per cent of the 9,800 homes with mort­gages in this county about 80 miles north­west of Chicago are un­der­wa­ter, ac­cord­ing to the ATTOM data. Some houses that went for $225,000 dur­ing the boom are now worth about $85,000, prop­erty records show. By early 2010, un­em­ploy­ment topped 18 per cent af­ter a lo­cal auto assem­bly plant laid off hun­dreds of work­ers. At Can­dlewick Lake, so many peo­ple walked away from their homes that as many as a third of its houses were va­cant, said Karl John­son, chair­man of the Boone County board of su­per­vi­sors.

“It just got ugly, real ugly, and we are still bat­tling to come back from it,” John­son said.

While the lo­cal job mar­ket has re­cov­ered, signs of fi­nan­cial strain are still ev­i­dent at Can­dlewick Lake.

The com­mu­nity’s roads are beat up. The en­try­way, meet­ing cen­tre and fence could all use a facelift, res­i­dents say.

The lake has be­come a weed­choked “mess,” “a cesspool,” ac­cord­ing to res­i­dents who spoke out at an as­so­ci­a­tion meet­ing ear­lier this year.

As­so­ci­a­tion man­ager Theresa Balk says a re­cent chem­i­cal treat­ment is help­ing.

An­nual home­owner’s dues of $1,136 are be­ing stretched to pay for all the up­keep. But those fees may be a big de­ter­rent for many would-be buy­ers at Can­dlewick Lake, said as­so­ci­a­tion board mem­ber Randy Bu­dreau.

“A gated com­mu­nity like this, with our rules and fees, it may be just less at­trac­tive now to the gen­eral pub­lic,” he said.

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