As we all know, no sector of the economy has been hit by the recession as hard as the housing market. Now, new numbers indicate that American home values have lost $2 trillion in value during the first three quarters of 2008. Around 11.4 million homeowners are now â€œunderwaterâ€ on their homes, owing more than their homes are worth.
For financially sound homeowners who are not planning to move, a decline in home values is more of an annoyance than a crisis. Values will rise again eventually. But for homeowners whoâ€™ve lost jobs or bought too expensive of a home to begin with, being underwater in a home loan is a major problem. If you need to sell your home but canâ€™t sell it at a price that will cover what you owe on the mortgage, youâ€™re financially trapped.
Unfortunately, our housing market got caught in a cycle of rampant speculation which drove prices above sustainable levels. There is no simple solution for homeowners who bought at the top of that cycle and are now burdened with more debt than assets. But finding a solution will undoubtedly be a focus for the new administration.