Take for example, an article in The Wall Street Journal on November 24, "One in Four Borrowers is Underwater." The piece correctly states that, based on research by First American CoreLogic, 23% of all mortgage borrowers owe more than the actual value of their home. But the article also swells this figure to 28% when it includes those "near negative equity share," which is defined as those within 5% of being underwater.
In other words, if someone were to buy a home recently and pay a brokerage fee, they would most like be included in this latter figure. That statistic also includes folks who are at break-even or slightly profitable on their home purchase.
The article is also correct in identifying borrowers instead of homeowners. According to The Wall Street Journal, about 24 million Americans own their homes outright. When combined with the 46 million existing residential mortgages, about 70 million folks live in a home purchased with a mortgage or with cash.
Using the 10.7 million figure of homeowners with negative equity, the percentage of Americans underwater is actually closer to 15%.
And about one-half of those underwater live in one of four states--California, Florida, Arizona and Michigan. The first of these three were the likely victims of overbuilding and speculation, while the fourth's suffering can be tied to troubles in the auto industry.
When these troubled areas are excluded from the study, the percentage of mortgages that are actually underwater is much lower.
The housing market is truly in dire straits, and many people are suffering. But to mislead readers into thinking the situation even more dire is, at best, self-serving.
Ben Warwick (firstname.lastname@example.org) is chief investment officer of Quantitative Equity Strategies LLC in Denver, and Memphis-based Sovereign Wealth Management, Inc.
See More of Ben Warwick's Portfolio Gourmet Blog PostWhy Have Large Caps Outperformed Since August? November 19, 2009 Three themes help explain why that's happening... A Steady Course November 05, 2009 Even though stocks have dropped a bit lately, there are reasons to be a little more optimistic.... The Shirt on My Back October 19, 2009 Signs of deflation seem to be all around us. The Social Security Administration just announced that beneficiaries won't be getting a cost of living increase for the first time since COLAs were introduced in 1975. Inflation May be Inevitable... October 08, 2009 Among the factors for determining future allocation decisions is the most likely direction for inflation. We have noticed a number of investment firms launching new funds to profit from the inevitable return of high prices Inflation Paradox September 30, 2009 A little inflation is a good thing, because it shows that there is decent demand for products, and an economy that's nicely "humming along." Runaway inflation is not a good thing, however. ...
Tandem Performance Puzzle September 25, 2009 Typically, stocks and bonds go in opposite directions, a tendency that has exhibited itself throughout most of 2009. But in the last four weeks, long-dated Treasuries have risen right alongside equities, as the pair has each notched a 6% gain....
The State of the Consumer September 22, 2009 There's some obvious trepidation out there among buyers, who would rather save than spend. But instead of money-market accounts (and their zero yields), it seems that most folks prefer to stash their savings in the stock and bond markets.