About a quarter of American mortgages are underwater. What is owed on the mortgage exceeds the value of the home. As homeowners get increasingly underwater, they have more incentive to default on their mortgage.
As a result, foreclosures boom and property values decline, leading to more homeowners going underwater and a vicious cycle ensues.
Here’s more: Furthermore, the poll also revealed that only a third of American workers with a home mortgage “perceive their savings to be sufficient,” and that the growing concern about job loss is causing more and more homeowners and would-be homeowners to seriously consider renting instead of home ownership. Doug Duncan, Fannie Mae’s vice president and chief economist, blames these concerns for the fact that “consumer spending…ground to a halt in the second quarter [of this year]”. He believes that as long as consumer confidence remains low, the housing market will continue to experience setbacks in its recovery.