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Underwater Mortgages Still Hamper House Sales

President Reagan used to joke that a recession is when a neighbor loses his job; a depression is when you lose your own.

In other words, perceptions of economic reality have a lot to do with the eyes of the beholder. This is as true for the real estate crisis that accompanied the Great Recession as it is for the Great Recession itself.

Four years after the market tanked, many people are still waiting for Minneapolis real estate prices to recover. Millions of others are waiting for recoveries in their areas of the country as well.

What's happening, however, is a tension between two conflicting trends. On the one hand, purchasers are more eager than have been in years, because houses are so much more affordable than they've been in a long time.

On the other hand, many current homeowners are unwilling or unable to sell because they owe so much more on their houses than those houses are now worth.

In other words, the sheer number of underwater mortgages is a drag not just on the ability of new buyers to find affordable homes. It's also a drag on the recovery of the real estate market as a whole - especially in places where the percentage of underwater mortgages is highest.

In the Minneapolis area, the number of homes available for sale has dipped considerably in recent months. Cari Linn, the president of the Minneapolis Area Association of Realtors, says that a "domino effect" is taking place - in reverse.

"People have to find a seller to move," she said. But the inventory of houses available is limited.

Shorts sales and other strategic approaches may be worth considering, however, as buyers and sellers try to get the dominos moving again.

Source: "Homes for Sale Grow Scarce as Sellers Await Higher Prices," John Gittelsohn and Prashant Gopal, BusinessWeek, 5-15-12

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