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Underwater Mortgages a Threat to Economic Recovery and The Deficit

“It keeps the recovery from being all that strong,” says Mark Vitner, senior economist for Wells Fargo Securities in Charlotte, North Carolina. “We don’t see how the economy can get above 3 percent growth, except for a short period of time, with housing being so deeply underwater,” he said. In the 18 months after the recession ended in June of 2009, the economy grew at an average annual rate of 3 percent a quarter. A survey of economists by Bloomberg News produced a median forecast that growth slowed to a 2 percent rate in the first quarter of this year, not enough to ease the nation’s unemployment crisis. Further Declines Seen Further home-price declines this year -- expected by analysts such as Robert Shiller of Yale University -- would push several million more Americans into negative equity. Home prices dropped 5.7 percent in February from year-earlier levels, according to the Federal Housing Finance Agency, the fourth consecutive month of backsliding. Homeowners who are underwater may be slower to relocate for employment, leaving job-poor markets clogged with surplus workers. Would-be entrepreneurs are unable to tap their non- existent home equity for start-up cash, meaning some good ideas for new businesses never get off the ground.

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