Underwater Mortgagors are Actually Renters?

Economists at the Federal Reserve Bank of New York are counting underwater borrowers as renters rather than homeowners, to calculate future homeownership rates. Unless house prices increase substantially in the next few years, many homeowners with negative equity will default and exit their homes, become renters and homeownership rates will drop substantially, according to economists Andrew Haughwout, Richard Peach and Joseph Tracy at the New York Fed. This effect will be especially notable in hard-hit markets like Detroit, Las Vegas and Miami. The national homeownership rate fell to 67.2% in the fourth quarter from a high of 69% in 2006, but is likely to drop even further in the next few years to levels last seen in the 1990s, they said. The economists contend that there is a significant "homeownership gap" that could be as high as 5.6% nationally between the official homeownership rate and what they call the "effective" rate, which excludes underwater borrowers.