Underwater Mortgages Point to Declining Neighborhoods

According to the Federal Reserve Bank of New York, the dramatic increase in the number of “underwater” mortgages could lead to less stable neighborhoods over time.

Researchers argue that people who owe more than their properties are worth likely will become renters at some point and therefore shouldn’t count as homeowners.
The official homeownership rate in South Florida peaked at 71% and now stands at 67.1%. But back out all the underwater mortgages, and the rate according to the Case-Shiller Home Price Index plummets to 44.6%.

The 22.5% point gap is high, but other areas are worse. Las Vegas’ official homeownership rate of 58.6% plummets to a measly 14.7% when you consider underwater mortgages. Phoenix falls from 68.8% to 40.6%.

“A drop in the homeownership rate may create a large set of residents who are less invested in the long-run outlook for their homes and communities – an outcome that could lead to lower levels of home maintenance and civic participation, as well as more short-sighted decisions in local affairs,” researchers wrote.