Goldman Sachs: By 2009 You May Owe More Than Your Home Is Worth

Home prices experienced the steepest drop on record for a single quarter says the National Association of Realtors:

The national median price drop of 5.8%, to $206,200 from $219,300, was the steepest ever recorded by the National Association of Realtors (NAR), which has been compiling the report since 1979.

Goldman Sachs is predicting that 15 million homeowners could owe more than their home is worth.

Prices have fallen more than 10 percent since their July 2006 peak in the worst U.S. housing slump in 26 years as the number of unsold homes has grown and prospective homeowners had a tougher time getting home loans. As many as 15 million U.S. households may owe more on their mortgages by the end of this year than their homes are worth, according to an estimate by Jan Hatzius, chief U.S. economist at New York-based Goldman Sachs Group Inc.

This makes us wonder:

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Home Prices Fall in 77 U.S. Metro Areas, Realtors Say (Update2) [Bloomberg]
Home prices in steepest quarterly drop [CNNMoney]


Edit Your Comment

  1. ConnertheCat says:

    Well, since my parents have only 2 and a half years left on their 25 year mortgage – I doubt that will happen to them ~ Thank god!

  2. CuriousO says:

    I don’t even own a home, I want to, but the property taxes here in Texas are ridiculous!! I am only 23 I think I will just sit in the sidelines and wait this one out.

  3. Anitra says:

    We bought our house with just %5 down last May. So if we don’t already owe more than it’s worth, we will soon.

    Doesn’t really bother me, though – both our first and second mortgage are fixed rate and affordable, and we’re planning on staying here for at least 10 years.

  4. m4ximusprim3 says:

    I rent and want to click something! Option 4 for me!

    One of my best friends lives in one of the mcmansion tracts in stockton, CA (recently featured in an article on this fine site as the center of the slump), and he is real, real sad right now.

    I told him in late ’05 to get the hell out, and he wouldn’t listen.

  5. yesteryear says:

    man, and i was pissed about being upside down on my car loan. for once its good to be a renter!

  6. winstonthorne says:

    @yesteryear: It’s usually good to be a renter; we have mobility, a fixed low monthly housing cost (no maintenance! ever!) and very little (if any) liability.

  7. sleze69 says:

    “No way” here.

    My neighborhood is filled with old money and (so far) prices keep rising. I also did some bang for your buck improvements (kitchen, central A/C) so the overal value should increase a bit for those alone.

  8. Anonymous says:

    I’m about $40k up right now on a home in North Georgia so as long as the market doesn’t tank completely I’ll be OK.

  9. Parapraxis says:

    No, as long as I keep using duct tape to keep my cardboard box waterproof, it’ll always be worth more.

  10. mac-phisto says:

    it’s official! america likes to click!

    quick note for the renters: don’t be too excited. if your landlord gets into some trouble, this may affect you soon too. =(

    @CuriousO: unfortunately, this may negatively impact tax rates (as in, they may go up). a lot of people in my neck of the woods are pretty pissed about receiving assessment letters stating their valuation has gone up!

    funny how that works, isn’t it?

  11. Maurik says:

    I do, only because I’m a student who doesnt own a home, living in a tiny flat! :p

  12. Prince of Zemunda says:

    I think that my wife and I are upside down but not buy much. We bought our house in Dec of ’05 w/0 down (dumb move) and a 30yr fixed. So we were in bad, as far as the 0 down part, to begin with. Luckily in Louisville, KY prices don’t fluctuate badly. Our problem is that we think we bought a crap house. We used the real estate agents suggested inspector (another dumb move) and in our two years living in the house have found many messed up things that there is no way he should not have found. We were young and dumb (25 & 22) when we bought the house and now know better. We should have continued to rent and saved. Seeing how I now make double then what I made in ’05 and houses are cheapter now it would have been a perfect scenario. Good thing it’s a 30 year fixed and we aren’t going anywhere.

  13. B says:

    Since I don’t have a home, but I do have student loan debt, I guess the answer is yes.

  14. rbb says:

    Why the big fuss? If you have a fixed mortgage and don’t plan on moving any time soon or getting a huge equity loan, if does not matter what your house is worth.

    In fact, it can be a good thing because your property tax assessment is based on the value of the house.

  15. punkrawka says:

    Responsible people shouldn’t be worried about owing more than their home is worth. If you took out a fixed-rate mortgage and view your home as a responsible living arrangement rather than a short-tem investment, it will fluctuate in value, both good and bad, over the time that you live there, and you just make the payments on the price that you agreed on to start with.

    Yes, selling will be difficult if you happen to be upside-down when you need to move, but anyone who made the biggest financial commitment of their life on the assumption that they could drop it at a profit at a time of their choosing… well, they deserve the consequences.

  16. B says:

    Just remember, if you have PMI on your loan, the 80% is based on the original value, not current value.

  17. JohnMc says:

    Bought smart, below appraisal, 30yr fixed and have been making extra payments since year 1. That was 6 years ago. So I really doubt that I will owe more than my equity stake. But then, never say never right? A tornado could come thru wipe the whole neighborhood out.

  18. humphrmi says:

    My property value already “tanked” – from $425K to about $350K. I bought at $240K. I owe less than $180K. It’s got a long way to go to leave me upside down.

  19. MattO says:

    i am updside-down, but then again, just bought in May, and as most people who have 30 year fixed mortgages know, the first however many payments are like, 90% interest lol….so for the past 10 months, we have paid prolly only about 1000-2000 towards principal :-P. doesnt bother me though – i bought the house as a place to live, not as an investment….as long as i own it, and i can make the payments, i could care less.

  20. Faerie says:

    I’m upside down for sure. My house is worth less than it was 6 years ago when I bought it. And it’s worth less than half of what it appraised for 2.5 years ago. I took some money out to do improvements at that time. I expected some fluctuation, but never to this degree. If I hadn’t had to relocate due to my job and now be in a position where I have to sell, I wouldn’t be too concerned.

  21. lpranal says:

    I just wish I could afford a house… stupid college degree. Seems like half the people I know without one are making the same or more than me.

  22. The people who were paying attention knew this was going to happen to a lot of people this year or next. When I was doing my MBA (2003-2005), I KNEW that housing prices were too large. That money was abnormally cheap. That people were buying things they couldn’t afford. That it couldn’t last forever. I gave it, at the end of B-school, 2-4 years before it started to come apart.

    Negative Equity is the technical term for owing more than it’s worth.

    Tying to another story on here, if you have a PMI on your mortgage, and are around the 80% loan to value ratio, you want to get it done, NOW, because you might wind up in a negative equity, and will be hard pressed to get back to 80% again. Be afraid. And envy us renters.

  23. justbychance says:

    Just purchased and fighting to never be upside down. This market is crazy. It was better when everyone was speculating, and lending money like it was going out of style.

  24. gamehendge2000 says:


    Hey Pot, a lot of good your MBA did you if you’re still renting.

    I on the other hand, am living large on my philosophy degree

  25. Radoman says:

    Real Estate prices are a regional thing. If I still lived in Southern California, I’d be in deep trouble. I couldn’t afford a $3,000 a month payment on a $500,000 home, so I moved to a region where you can get a beautiful home for 100K less than the national average. (around 150k for somethin super nice)

    So now, I’m in Southern Colorado, and the parallels between the two places continue to intrigue me. A smaller military town just south of a large city. Both towns are mostly run by conservative types, but have a gigantic liberal population. (proof to me that these two groups can work together) Los Angeles is to San Diego as Denver is to Colorado Springs. Hard not to see the similarities.

    The only real difference so far has been the lack of an ocean, but the beautiful mountains make up for that, and snow. It’s certainly been worth saving $400,000 dollars to me. There’s no way houses can get much cheaper than where I am. I dare say it’s one of the undiscovered gems of the whole country.

  26. rishu73 says:

    My house – 30% down, 30 year fixed and about 2 years of powerpaying (monthly payment * 13 / 12) Starter home pricing – I think I’ll be good

    My wife’s house, on the other hand – reverse amortization, 5% down, ARM, depressed market – ouch!

  27. fizzyg says:

    We’re in a no-bubble area, so prices never really went up and aren’t coming down much. A 95k house (12k of which is appraised as land value) just isn’t getting that much cheaper.

  28. l951b951 says:

    @sleze69: Mainstream media likes to take figures for the worst areas and imply that they represent the entire picture. The NAR study also pointed out markets that are doing ok, but the article fails to mention those areas. Most of Georgia is doing fine, but that doesn’t make for interesting news, so it doesn’t get attention.

  29. bohemian says:

    Were $20grand up right now. Most of the used homes in the same size configuration as ours with the finishes redone are going for at least $40grand more than we paid for ours. A new house of the same building plan as ours is going for about 70 grand more than we paid for ours.

  30. Smackdown says:

    @CuriousO: Tell me about it. Thank god, they’re tax-deductible – we spent 10k in property taxes last year.

  31. mac-phisto says:

    @gamehendge2000: one cannot truly say he is “living” until one first defines “living” & for that matter, who am i to define that which can & cannot be defined?

    god, i always hated classes with you guys. symbolic logic was awesome, though. i’d like to take that again.

  32. arcticJKL says:

    Excellent post!

  33. CuriousO says:

    My mom bought her home in 1999 for $74,000 in sunny SW florida, the house was built in 1992. At the peak of the Bubble houses smaller than hers in the neighborhood where selling from over $300,000. I remember she thought of selling but then realized anything she would buy would be more expensive and no money would be saved. She had her house appraised and it was for $320,000!!!! Now.. her house is appraised just over $200,000……Damn I wish I had her luck! Here in Texas i could buy something real nice with the extra cash.

  34. smoothtom says:

    Hmm let’s see … I bought my little house in the middle of Ohio in 2003 for $77,500 with no down payment at all, did a bunch of renovations, and now owe about $72,000. Two years ago, the realtor said I could get $89,000 if I sold; now it’s probably a little less than that. I won’t get rich if I sell, but I don’t think I owe more than it’s worth.

  35. theblackdog says:

    Why wasn’t there a “No, I can’t freaking afford a house because of the outrageous pricing” option?

  36. CuriousO says:

    @theblackdog: I think Loans should be simple… By the time you pay for your House you paid like 3X what the house was worth. I think the loans should be like this… You borrow $100,000.00 and you pay me $200,000 back, just double it and make payments until you pay the $200,000 for up to 30 years. I know I am dreaming but wouldn’t it be nice?

  37. woodenturkey says:


    no shit, i was going to buy a house and stop renting, but after paying all the bills and taxes that come with a home the wife and i decided to keep renting and save the money

  38. woodenturkey says:

    – paying

    + seeing

  39. theblackdog says:

    @woodenturkey: I hear you. In the DC metro area, a 1 bedroom condo now costs over $100,000. Some townhomes nearby me are about 1/2-3/4 of the size of my parents’ house in Phoenix, and these homes cost about $210,000 on average, yet my parents’ house was $180,000, even for being in the center of the city.

  40. spinachdip says:

    From Paul Krugman earlier this week:
    Voluntary foreclosure comes when people simply walk away, either because the mortgage is “nonrecourse” – the bank can seize the house, but no more – or because they figure, probably correctly, that the bank won’t really try to pursue them.

    Hal Varian (Berkeley prof and now chief economist at Google) puts it simply, and in somewhat exaggerated form, by saying that everyone will just default on their existing mortgage and move one house to the left, buying a new house for less than they save by walking away from the mortgage they have. Things don’t work that smoothly, but that gets the principle right.


  41. swalve says:

    The median price really isn’t relevant to foreclosures or even home prices. We don’t know if the properties are comparable to the previous ones.

  42. humphrmi says:


    everyone will just default on their existing mortgage and move one house to the left, buying a new house for less than they save by walking away from the mortgage they have. Things don’t work that smoothly, but that gets the principle right.

    Really? People can walk away from their exiting mortgage and still get a new mortgage? If that’s the case, then lenders have learned nothing from the sub-prime meltdown.

  43. mac-phisto says:

    @humphrmi: i do know more than one individual that gamed the system by straddling mortgages, as is typical with those that are selling their house. if their first home is on the market, they can often convince the bank not to consider that mortgage in the calculations for the house their looking to buy.

    they move into the new home, default on the old home, & as long as they don’t plan on going anywhere for 7 years, they’re golden.

    another tried & true method is to put the homes/loans in only one person’s name. husband lets his credit slide by losing the first house, but wife applies for mortgage on second house individually. this typically only works when both husband & wife are gainfully employed.

    even filing bankruptcy can put you in a new home, though i suspect that lending options are scarcer than they were a couple years ago for these folks. lenders often consider post-bankruptcy applicants to be a good risk b/c 1) they can’t file for another 7 years & 2) their debts have been absolved, making their debt-to-income ratio excellent for showing they can handle the debt.

    i’m sure that’s just the tip of the iceberg.

  44. ginnylavender says:

    I bought my house ten years ago for $52,600 (2 Bedrooms, 2 baths, central heat and air, woodburning fireplace)and it now has a taxable value of $120,000. Plus they’ve discovered that it sits on a natural gas deposit, like the rest of this city. No downward slide here.

  45. guevera says:

    @L951B951: Who cares what NAR says about anything. At this point I wouldn’t believe that group of shysters if they told me the sky was blue

  46. Pixel says:

    Ha! That’s my image. That seems to be the most popular photos I’ve ever taken. Another from the same set ended up in a Danish engineering magazine.

  47. ihateauditions says:

    I just moved a few months ago.

    Bought new construction that was extremely heavily discounted (about 15% of the home’s value in free upgrades and cash discounts.)

    Sold from a neighborhood where the values had stopped climbing, but never really went down.

    Winner’s circle, baby.

  48. Radoman says:

    I posted just yesterday that one of the only differences between Southern California and Southern Colorado that I experienced was the snow in Colorado.

    Well it snowed enough in San Diego yesterday to close the highways!! Unbelievable. That can’t be good for real estate values in a place where the sunshine is so often put forth as a reason for the ridiculous home prices. (link to the story below)


    Feelin pretty good about not spending an extra 400k in “sunshine tax” right now.

  49. mariospants says:

    Moved from Cali to Ontario a few years back and glad to say that there’s absolutely no mortgage mess here (and home values are growing in high-demand areas).

  50. yesteryear says:

    @winstonthorne: i agree that right now it’s good to be a renter, but not forever! do you want to be paying rent (at the inflated prices of 25-40 years from now) while youre living on your non-existent social security? i would like to own at some point. you say we don’t have liability but what if we accidentally knock a hole in the wall or a pet tears up the carpet? renters also can’t paint or remodel their aging kitchens and bathrooms.

    so i guess its better to rent if you are either a completely unaesthetic person who is living day to day instead of thinking about the future… and doesn’t mind continually renewing a lease to prevent monthly expenses from increasing at the whim of their landlord…. BUT even with the nightmare we are witnessing in the housing market, real estate is still a great investment (if you make smart decisions, of course).

    anyway – it’s moot here in the bay area where a 1 bedroom loft in a shitty neighborhood in oakland is going for $450k. i’m forced to be a renter.

    if anyone’s interested in housing and rental costs in california – and how ridiculous it is here – i recommend ‘Locked Out 2008: The Housing Boom and Beyond, February 2008’ you can find it here:[]

  51. mthrndr says:

    My house was just revalued 40% higher than what I paid. Course, that doesn’t mean I could sell for that much, but I don’t see it falling too much in this neighborhood.

  52. Rusted says:

    I paid cash. Would have to have a negative value.

  53. JeffM says:

    “No way” – I don’t own!

    I’m unfortunately not stupid enough to buy a house in a economic climate as such. (Sorry NAR :( ) As college graduate in 2005 I have never seen a good opportunity to buy my own home with my wife. Much happier renting for $2K/mo over owning- my liquid savings from not owning should out pace the growth of real estate over the next five years quite handily.