As home values continue to decline and government efforts continue to grow in order to keep families in their homes, the landscape of homeowners is beginning to look more and more like zombies.
According to wikipedia, the term zombie bank was originally coined by Edward Kane in 1987 and describes the phenomenon in which a, "financial institution with an economic net worth that is less than zero, but which continues to operate because its ability to repay its debts is shored up by implicit or explicit government credit support."
Translated into the housing market, the number of people that find themselves under water (owing more than their home is worth) yet still being able to afford their home as a result of loan modifications, foreclosure moratoriums, and massive intervention by the Fed into the secondary mortgage market to drive down rates, is continuing to grow.
In either case, both for banks and homeowners, the result is that neither a banking system nor a housing market are able to recover in a timely manner because all of the resources are allocated to propping up the entities rather than stimulating the sector.
First American CoreLogic is reporting that nearly 1 in 5 or approximately 8.31 millionproperties were under water at the end of December of 2008. This number is up 9% or about 700,000 homes from the end of September of 2008. They go on to say that an additional 2.16 million properties could go underwater if home values fall by another 5%. Well, since December, home values have continued to fall, and they will continue to do so for the foreseeable future. Despite all of bailouts, "stimulus", and loan modifications, according to the NAR, the housing market in February is in the exact same position it was a year ago with a 9.7 month supply of housing. The only change is that the average home is worth 15.5% or about 30K less.