Housing Crunch

[Eugine]

A housing crunch can also create an underwater mortgage situation. When there is a demand for living space that exceeds the number of units available in the area, prices for any homes will rise significantly. The end result is that the market values temporarily rise, and mortgages are taken out to meet current prices. When the crunch is over and market values drop, owners are left owing more on their homes than the property is actually worth. At this point, the owner will find it virtually impossible to sell the property for enough to cover the cost of the mortgage, and may be more likely to default.