Florida was one of the states that was hit hard by the real estate bubble and the aftermath of the real estate market collapse, banking crisis, and the recession that followed. Many homeowners lost jobs and watched as the value of their homes plummeted, leaving them underwater with their mortgage, and owing far more than they could sell the property for after the collapse.
Millions of homes went into foreclosure across the nation and in Florida. Homebuilders went bankrupt and much of the construction industry shut down and thousands of workers were laid off. If you were lucky enough to keep your job and maintain enough income to afford your mortgage, many Florida residents found themselves with a home that was worth tens of thousands less than their mortgage.
This meant they could not sell, because they literally could not afford the sales transaction, as they would have to pay off the mortgage out of their own funds, funds many did not have because of the recession.
For those who were severely underwater, some simply walked away and declared bankruptcy to prevent the lender from collecting a deficiency balance. While this was a drastic solution, the fact that there are still millions of homes that remain underwater suggest this probably was the correct economic solution, as it forced the lender to recognize the real value of the property, not the grossly inflated mortgage value.
Recent numbers show that there are still 5.4 million homes underwater, and more than 11 million that have limited equity that make selling problematic. Because these homeowners cannot sell, they remain trapped, forced to wait for further improvements in home values.
It is important to remember that a home purchase is the largest expenditure most American ever make, and for all the emotional attachment we have with our homes, at the end of the day, it is an economic transaction, and you need to be certain that it makes economic sense.
Cnbc.com, "Millions of 'underwater' homeowners are trapped," Diana Olick, March 17, 2015