Part of the reason prices have dropped and continue to stay low is due to a very high number of foreclosures. What is interesting though, according to a report led by economists from Northwestern University and University of Chicago confirming that people are walking away from their homes even if they can afford the monthly payments and it's happening on a grand scale.
In a study of more than 1,000 American households, the report concludes that more than a quarter of existing mortgage defaults are "strategic" -- done by those who can afford their monthly mortgage payments, but choose to default anyway.
A main factor in strategic defaulting is the extent a home is underwater, or worth less than what's owed on the mortgage. Have a look:
Amount Underwater | Percentage of Sample Declaring Intention to Default |
|---|---|
$50,000 | 9.38% |
$100,000 | 25.81% |
$200,000 | 41.23% |
$300,000 | 44.65% |
The report also found the propensity to walk away within a specific ZIP code fed on itself, which the researchers attributed to "a contagion effect that reduces the social stigma associated with default as defaults become more common." In other words, "Hey, if my neighbor's doing it, I might as well, too". This is happening far more in CA, NV, FL, AZ than in WI but it is happening nevertheless. As long as this phenomenon is going on and the high inventory of homes for sale, it is difficult to imagine a return to the bubble prices (years 2003-2005) any time soon.
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