Those who are underwater aren’t “trapped” in their homes, they are free to move.
The system has been very generous, and even if the Congress doesn’t extend the debt-tax relief, the banks will be processing short sales to enable the underwaters to move – without having to repay the debt.
The homeowners that choose the short sale – it is a choice, you can always pay it down – will probably have their credit banged up along the way and won’t be purchasing a home concurrently. But that’s OK, with the the supply-and-demand curve around here needing more supply and less demand, we welcome the sell-only short sellers.
However, as the media keeps hyping the real estate comeback, the underwater homeowners who can make their payments will be more inclined to not default/short-sale, for these reasons:
There aren’t cheaper alternatives in the same area.
Let’s wait a little longer, equity might be right around the corner.
Save face, and credit.
Those who have waited this long will continue to ride it out, and short-selling should diminish in the areas that see real appreciation happening. So charts like these below shouldn’t cause a lot of alarm in the NSDCC, where there are only 398 SFRs with NODs and NOTs on file currently, and half of those are in Carlsbad.
Let’s note that 91% of the San Diego homeowners with negative equity are making their payments!