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The New York Times has an interesting graphic showing the areas of the country where home owners owe more than their home is worth.  In other words, Joe Homeowner has a $300,000 mortgage on a home that is now just worth $250,000.  This is called being underwater by about $50,000. 

Being underwater is not a good thing.  Ever.   One of the reasons there are so many foreclosures is that many home owners who are in trouble financially are unable to sell their homes at prices that would pay off their current mortgage and they are also unable to refinance because no lender is going to grant a new mortgage on a property that is worth less than the loan amount since it is the home that is securing the loan.

What is interesting is that Illinois has a fairly sizable bubble indicating a decent number of homes underwater.  My guess is that the much of that bubble is driven by the far flung suburbs.  Like many areas in the country, Illinois had unchecked development out in the middle of the sticks as homeowners moved further out into the exburbs due to cheaper prices.  However, as gas prices surpassed $4.00/gallon, living in a bland McMansion in a former cornfield didn’t seem so appealing when you have to drive 30 miles each way to work everyday in a SUV.

Most my clients that live in the city haven’t had any problems getting the needed appraised value on refinances.  Typically, we have been assuming that the home is worth what the borrower paid for it if bought within the last two years.  Generally, this hasn’t been an issue.  So while the Chicago market certainly isn’t booming anymore, it also isn’t totally cratering either.

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