An alarming number of US homebuyers are underwater
If you&#x27;re buying a house to live in, being underwater doesn&#x27;t really matter as long as you can make payments. It&#x27;s not great, obviously, but if you made the purchase to live there for a couple of decades, not as an investment, then the paper value of your home isn&#x27;t especially meaningful.<p>Being underwater became an issue in the last mortgage crisis because people couldn&#x27;t afford their home payments (especially when they had ARMs that were about to adjust) and needed to refinance, which is not an option if you&#x27;re underwater. They then got foreclosed on, which put more homes on the market, yada yada yada death spiral.<p>Today, the percentage of people with ARMs is drastically lower than it was then, and lending standards are much higher. Unless people lose their jobs, they generally aren&#x27;t forced to sell. That&#x27;s why, despite there being low demand in the market, prices have only moved down slightly. Because there&#x27;s also no supply - people are locked into 30 year fixed mortgages at 3%, and in the current interest rate environment they have no incentive to sell (barring job loss, death, divorce, etc.).<p>For that reason, I strongly doubt we&#x27;re going to see the kind of downward spiral we saw last time. Home prices may continue to decline slowly as people who are forced to sell must do so at less than they&#x27;d like, but the lack of buyers should keep a floor under the market.