Metro Orlando leads state in 'underwater' home mortgages

Article Courtesy of The Orlando Sentinel

By Mary Shanklin

Published August 7, 2011


Orlando continues to struggle with a bigger share of underwater homes than any other metro area in foreclosure-scarred Florida.

More than 54 percent of the mortgaged houses in the four-county metropolitan area are worth less than what remains on their loans, according to a report prepared for the Orlando Sentinel by the real-estate-research company CoreLogic Inc.

The state overall trails only Nevada and Arizona in having the highest rate of "negative equity" houses, with 46 percent of Florida's mortgaged-housing stock unable to sell for the amount owed. Real-estate values have collapsed more in the state than in most others, driving down prices while driving up foreclosures and short sales.

The decision to continue making payments on a deeply indebted home has placed added stress on many Central Florida families.

Retiree Dorothy Nypiuk has not missed any of the $2,400 monthly payments on the $287,000 house she and her husband bought in theConway area more than a decade ago. They are struggling to pay the mortgage along with their medical bills, but at this point they aren't ready to walk away from the house, even though it is now worth only about $200,000.

"My husband doesn't want to do that," she said earlier this week. "He has a hobby: He works in the garage on radio-controlled airplanes. If we let the house go, what would he do? Where would he go? It would be just like putting him in a coffin someplace."

Other Florida metro areas aren't far behind Orlando in having large shares of underwater houses, but even a few percentage points can make a significant difference in the way a local market recovers, said Sam Khater, CoreLogic's senior economist.

The rate of over-mortgaged residential properties in Florida's other metro area ranged from 46 percent to 48 percent during the first quarter in Tampa, Jacksonville, Miami and, closer to home, Volusia and Brevard counties.Tallahassee had the state's healthiest housing market, with just one-third of its properties underwater.

Florida homeowners have $90 billion in equity in their homes and still owe $723 billion on them, according to CoreLogic.

Every percentage decline in an area's median home price translates into a percentage increase in the share of houses with debt that exceeds their value, Khater said.

The over-leveraged market is the result of sharp declines in housing prices since the middle of the past decade, he said. Orlando home prices have fallen 54 percent from what the company considers the local market's peak in September 2006.

Orlando's unusually large share of debt-laden houses does not necessarily indicate that the market will continue to erode, because the economy is not in a free fall, Khater said. But "strategic defaults," which occur when homeowners who could keep making mortgage payments choose not to, will continue to occur in Central Florida, he said.

Maitland real-estate agent Dan Duff said Central Floridians' attitudes about losing their homes have changed a lot since the market began its slide four years ago.

"First there was the shame factor, and then came the mad factor, when they tried to destroy their houses to get back at the banks," Duff said. "In the last 18 months to 2.5 years, it's been about strategic foreclosures. ... Just about everybody knows the banks aren't going to come after them. There's too many people out there, and the banks haven't come after them all yet."

The average person with negative equity in a home nationwide is $65,000 underwater, though the average in Metro Orlando is almost certainly higher.

"If you're upside down $80,000 to $85,000, you're looking at an extended period of time to become right-side up," Khater said. "They look at the calculus and say, 'I'm so far upside down that I'm not going to see the light of day. Why should I keep paying when I can move down the street or across the street and get the same home for much less, either buying or renting?' "

Once the difference between your mortgage debt and the value of your house reaches $100,000, your options other than foreclosure are very limited, he added.