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“One in five U.S. homeowners with mortgages owe more to their lenders than their properties are worth, and the rate will increase as housing values drop in states that have so far avoided the worst of the crisis, a new study shows.

About 8.31 million properties had negative equity at the end of 2008, up 9 percent from 7.63 million at the end of September, according to the study, released Wednesday by First American CoreLogic. The percentage of “underwater” borrowers rose to 20 percent from 18 percent.

Another 2.16 million properties could go underwater if home prices fall another 5 percent, the study shows.”  (Link to Reuters Article)

Commentary:

This is a leading indicator for how deep the banking crisis will get.  With so many people underwater in their mortgages, the banks essentially own the homes and are relying on the homeowner to continue making payments.  Many homeowners are throwing in the towel, pitching their keys onto the living room floor and walking away.  Housing prices got way out of control in the last 7 years in many of these markets.  There is still a lot of air to be taken out of home prices.  This thing could get much worse before it gets better.  –Allen