Here is a special report about real estate blues.

June 5 (King World News) – Gerald Celente:  Hundreds of thousands of American homeowners find they owe far more on their homes than the homes are worth. More than a million others face a huge leap in interest rates on their adjustable-rate mortgages.

About one in every 37 U.S. home loans qualifies as “seriously underwater,” meaning the homeowners owe at least 25 percent more on their mortgages than their houses would fetch on the open market. 

The proportion edged up to 2.7 percent in this year’s first quarter from 2.6 percent in the final three months of 2023, according to the 2024 U.S. Home Equity & Underwater Report from data firm ATTOM.

During and after the COVID War, waves of migrants from cities bid up house prices in suburban, exurban, and rural areas. The wave became a frenzy, with many buyers bidding tens of thousands of dollars above the asking price to beat competitors and not lose out.

The bidding war pushed home prices even higher…

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Since then, higher interest rates have quelled the rise in prices. Home prices are still increasing but not nearly enough to cover the tens of thousands of dollars people overpaid to secure a house.

In 12 states, the number of homes with seriously underwater mortgages grew by 2,500 or more, year-over-year.

Kentucky homeowners fared worst, with 8.3 percent of homes falling into the category, up from 6.3 percent in the previous quarter.  West Virginia came in second, rising from 4.4 percent to 5.4. Oklahoma had 6.1 percent, rising from 5.5; Arkansas went from 5.2 percent to 5.7.

Kentucky had not only the greatest percentage of increase but also the largest number of homes—more than 20,500—at the bottom of the tank.  That is almost twice the number as in second-ranked Mississippi. Oklahoma was third.

Among metro areas with populations of 500,000 or more, Baton Rouge, LA, posted 13.4 percent of mortgages seriously wet. Eighty miles southeast, New Orleans had 7.3 percent. Jackson, MS, tallied 6.5 percent to take third-worst place.

After 2019, more than 1.7 million U.S. homeowners bought their houses using adjustable-rate mortgages (ARMs). The interest rate is low for a fixed period, often five years, and then the lender can adjust it once or twice a year during the remaining life of the loan.

Most of these loans were taken out on homes that sold for an average of about $1 million. The lower interest rates prevailing before 2022 made it possible for households to buy such an expensive home that they might not have been able to afford otherwise.

Now they will find out whether they still can afford those payments.

“They could run into some trouble, especially on these large loan amounts as their [rates] come out of the fixed period,” Chris Stearns, a loan advisor at Thrive Loans, told Bloomberg. “Your payment’s gonna almost double and it’s not gonna be pretty.”

Many people who borrowed with ARMs were planning to sell the house before the rates began to adjust upward. However, a combination of high interest rates and high home prices have thwarted those plans by shrinking the number of qualified buyers.

Also, as prices rose and home values increased, some portion of ARM holders took out second mortgages to pay for big expenses, such as college tuition or a home makeover. Those homeowners face an even greater squeeze when interest rates bump up.

A five-year ARM taken out in 2019 averaged a balance of $791,100 and a 3.3-percent interest rate, working out to a monthly nut of $3,465 before taxes and insurance. ARM rates are now about 6.5 percent, but because of a cap set by law, the rate would rise to only about 5.3 percent.

That still would add an additional $1,000 a month onto a mortgage payment, Bloomberg calculated.

About 70 percent of ARM holders are at least somewhat concerned about handling that extra amount, according to a May Bloomberg survey. One in 10 think they might fall into arrears or default on their mortgage once their rates reset. 

ARM holders sliding into trouble can borrow against savings accounts to make the payments. They also could refinance the mortgage in a way that requires only the interest to be paid monthly, with the principal due in a lump at the end of the term. 

Homeowners also could plead with banks for a better deal, but they would have to show evidence they are unable to keep up the new payments but would be able to stay current on a different loan.

“The problem is there’s not really anywhere to run right now until rates get better,” financial advisor Tait Lane at Merit Financial Advisors said to Bloomberg. “We all kind of thought that was gonna happen by now, but the inflation data that keeps coming in is less than ideal.”

The U.S. Federal Reserve’s reduction in interest rates will come too late for many of these homeowners. 

By then, they will be either in default or so far behind on their mortgage payments that they will need to renegotiate with their lenders—not a happy prospect when banks have less money to lend and tighter qualifications for borrowers, especially those already in trouble.

The “underwater” problem is nowhere near as serious as it was in 2007 and 2008, when overpriced homes and subprime mortgages were key contributors to the Great Recession. 

However, the damage done by the growing economic squeeze these households will feel will be severe enough to add to American consumers’ gloom about the state of the economy and could be a factor in the presidential election.

Therefore, to keep the people in power in power, the Federal Reserve Bankster Bandits will lower interest rates in the run-up to the election. While The Street is betting they will lower interest rates in September, depending on how much the economy slows down, they may also bring them down 25 basis points in July… they are on vacation in August. 

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