The Underwater Effect: 2009 Housing Head Wind

A look at the forces that will be working against a housing recovery in the new year.


With home prices having dropped a painful 21 percent from their 2006 peaks, property owners everywhere could use a splash of good news in their New Year's Eve cocktails. But as a nasty recession is now part of the picture, the chances of an aggressive housing market rebound next year are dim. "A lasting recovery in the housing market?" says Mike Larson, a real estate analyst at Weiss Research. "I don't see it in the cards until the back end of the year—if that."

Here's a look at the factors that will be weighing down the housing market in 2009:

4. The Underwater Effect A recent Zillow report found that 1 in 7 American homeowners has negative equity—owing more on a home than it is worth. (For those who bought a home in the past five years, it's nearly 1 in 3.) Many homeowners in this situation will choose to simply walk away from their homes rather than continue to pay off a devaluing investment. And with home prices expected to fall further next year, the number of "underwater" mortgages will most likely increase. "The underwater phenomenon is going to be very bad in 2009," says Christopher Thornberg of Beacon Economics.

The List

Consumer Confidence
The Underwater Effect
Tighter Credit
Household Formation
Radioactive Effect
Foreclosure Sales
Subprime Mortgages