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While U.S. talking-heads were gushing about a one-month surge in residential construction (which adds LOTS of extra inventory to all-time record levels), Reuters published an article about what is potentially the most-damaging trend in the U.S. housing collapse.

“Underwater” mortgages, homeowners who owe more than their homes are worth, are soaring by the day. Even more troubling is that these “underwater” mortgages are concentrated in a few, key markets. The numbers are staggering.

More than 50% of ALL Nevada mortgages are “underwater”. This horrific number greatly exceeds 2^nd place Arizona (at 32%). What is truly catastrophic however, is that California and Florida are tied for 3^rd place – with 30% of all their mortgages “underwater”.

These are two of the most-populous states in the U.S., thus there are potentially millions of homes at risk just in these two markets. While some of these homeowners are simply walking away, many have simply stopped making payments – and are waiting to see when (or if?) their banks take action.

For U.S. banks, this is a catastrophe which the Obama housing band-aid does not begin to address. To start with, many of these homeowners already have such  large, negative-equity on their homes that they are not eligible for ANY current aid program.

Add to this disaster the fact that U.S. banks have only listed for sale 1/3 of the homes already foreclosed. This means there are millions of homes which the banks already are holding – but are afraid to list on the market, because it will cause prices to crash even FASTER, and because they can't afford to lock-in those write-downs on their balance sheets.

This leaves U.S. banks with two, wonderful choices. They can ignore these delinquencies, and take in no revenue on millions of properties which are losing more value by the day. Or, they can take possession of these homes – and add millions more housing units to the largest inventories in history.

By doing nothing (the current policy), all the U.S. banks are doing is stretching out this collapse over many more years. Currently, I'm predicting at least five years until the U.S. real estate market hits bottom. However, the continued refusal by U.S. banks to develop a realistic plan to deal with this problem could stretch the collapse to another ten years – just to REACH the bottom.

U.S. talking-heads may have rejoiced when U.S. home-builders dumped all this new inventory onto the market. U.S. banks obviously were not celebrating this news.

Here is a Reuters link for those wishing to read more about this catastrophe:

Owners skulking away from "underwater" U.S. homes

http://www.reuters.com/article/domesticNews/idUSTRE52H00Z20090318?pageNumber=2&virtualBrandChannel=10112

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