Homeowners continue to feel the residual effects of the previous recession, as the number of borrowers in a negative equity position is still relatively high. In fact, more than 14 million homeowners owe more on their property than it is actually worth. However, the tides are changing. While a lot of homeowners are in precarious situations, the number is dropping, and dropping fast. Due largely, in part, to home price increases this past spring and summer, underwater homeowners have been given new life. Particularly encouraging, however, is how the new price increases have helped those seriously underwater.
According to RealtyTrac, approximately 6.9 million U.S. homes were seriously underwater by the end of the third quarter. For clarification, “seriously underwater” refers to those homeowners that owe at least 25 percent or more on their home than it is worth.
Seriously underwater homes now represent 12.7 percent of all properties with a mortgage, but that number has dropped significantly over the course of the second quarter. As recently as June, there were about 7.4 million homeowners that owed 25 percent more on the mortgage than the home was actually worth. That means roughly 500,000 homes have removed the label of seriously underwater in a matter of just three months.
To understand just how far homeowners have come since the depths of the latest recession, let’s take a look at underwater homes in 2012. Just over three years ago, seriously underwater homes represented 28.6 percent of all homes with a mortgage.
“After a lull late last year and early this year, home sales volume and average sales prices picked up dramatically again in the second and third quarters of this year, resulting in a substantial drop in seriously underwater homeowners,” said Daren Blomquist, vice president at RealtyTrac. “On the other hand, the number and share of equity-rich homeowners also dropped dramatically between the second and third quarters.”
Experts attribute the recent drop in seriously underwater homes to borrowers that are more inclined to sell their homes, or pull money out of them. According to Black Knight Financial Services, cash-out refinances jumped 68 percent in the second quarter of this year compared to those of a year ago.
According to RealytTrac, more than 10 million properties are now considered to be equity rich. Subsequently, 19 percent of all properties with a loan have managed to build up equity, or the borrower owns at least half of the home outright.
All of these factors are working in favor of future home sales, with the exception of a few barriers. For starters, the amount of homes for sale is less than encouraging. A distinct lack of new and existing inventory for sale has prevented sales from taking off. Homeowners don’t want to sell if they’re not sure they can’t find something better. On the other hand, home sales have been hampered by the rate in which prices are rising. A lot of sellers are of the belief that they can wait for prices to rise even higher.
Finally, while the number of severely underwater homeowners has declined, it is far from perfect. There are still a lot of markets being held back by homeowners that owe more on their properties than they are worth. Florida markets, in particular, continue to harbor the most underwater homes. Las Vegas, Cleveland, Chicago and Toledo, Ohio, are also being hindered by seriously underwater properties. At the other end of the spectrum; San Jose, San Francisco, Honolulu, Los Angeles and New York continue to boast the highest amount of equity.