More Apartment Renters on the way?

Are there yet more new renters on the way? More new demand for apartment building investors? Bill McBride over at Calculated Risk has a piece out today on the latest Mortgage Monitor from Black Knight. Reams of data all organized nicely into charts and the good news is that the percent of of mortgages with negative equity has dropped to 10% but…

The numbers on mortgages that have been modified are in far worse shape and the story can be told in two charts. The first (on page 20 of the Monitor) showing that there are almost two million modified loans facing interest rate resets, meaning that the mortgage payment could be going up. The second chart completes the picture:

40 percent of modified mortgages have negative equity
Source: Black Knight Financial Services

The title of the chart says it all: More than 40% of all modified mortgages are underwater and another 18% are functionally underwater because they wouldn’t have any sales proceeds left after retiring the mortgage, paying sales commissions, closing and marketing costs. That’s 58% of all these homeowners who would have to write a check or get nothing from selling their homes. According to Black Knight’s data it’s the underwater borrowers who are most likely to go into default. While not all these are going to be foreclosed it’s also very unlikely that they would be able to get a modification on their modification. So the question in my mind is

Negative Equity + Bigger House Payment = ???

Granted, worst case we are only talking about a million or so mortgages but the biggest impact I see will be on the psychology of homeownership. If the coming resets bring on another wave of hardship it will just reinforce the idea in the minds of many that the new American Dream isn’t being tied down to a 30 year mortgage. For apartment building investors in markets where jobs are growing the demand for apartments will be growing right along side.


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