More Irrational Exuberance?

Ruth Simon and James Hagerty with an interesting article in the Wall Street Journal. Full article here.

Briefly, an additional 4 million homeowners were "underwater" after the first quarter of 2009 than at the end of 2008.  In the meantime, what has happened to the value of toxic mortgage-backed securities over the past 4 months?  Toxic collateralized debt obligations?

How have things gotten better then?  Why is the stock market rallying?  

"The downturn in home prices has left about 20% of U.S. homeowners owing more on a mortgage than their homes are worth, according to one new study, signaling additional challenges to the Obama administration's efforts to stabilize the housing market.

The increase in the number of such "underwater" borrowers comes amid signs that falling prices are making homes more affordable for first-time buyers and others who have been shut out of the housing market. But falling prices also make it more difficult for homeowners who get into financial trouble to refinance or sell their homes, and for others to take advantage of lower interest rates...."

"Real-estate Web site Zillow.com said that overall, the number of borrowers who are underwater climbed to 20.4 million at the end of the first quarter from 16.3 million at the end of the fourth quarter. The latest figure represents 21.9% of all homeowners, according to Zillow, up from 17.6% in the fourth quarter and 14.3% in the third quarter."