Ranks of underwater homeowners shrinking, boosting housing recovery
by Broderick Perkins
(9/14/2012) If home prices increase nationwide by 5 percent, 2 million
more underwater homeowners would surface with some equity, according to a
That could mean more would list homes for sale and keep the
short-inventory housing market from taking off again at unsustainable
Right now, many underwater homeowners - who owe more than their home is
worth - are keeping their homes off the market due to their
unwillingness to sell at a loss.
That's putting a crimp in the housing recovery.
Limited homes for sale are generating somewhat of phantom recovery as
demand-exceeding-supply conditions is ratcheting up prices, perhaps faster
and more unsteadily then they would rise in a market with a more level
But that's changing, according to CoreLogic's Q2 2012 Negative Equity
It analysis reveals 10.8 million homeowners, 22.3 percent of all mortgage
properties, were underwater at the end of the second quarter. That's down
from 11.4 million homeowners, or 23.7 percent, at the end of the first
quarter of 2012.
Also, another 2.3 million borrowers were nearly underwater, with less
than 5 percent equity in their home, at the end of the second quarter.
Both underwater and nearly underwater mortgages accounted for 27.0
percent of all mortgage residential properties in the second quarter, also
down from 28.5 percent at the end of the first quarter in 2012.
Most underwater borrowers keep the faith, hoping for a day when they can
again come up for air and benefit from appreciation-gained equity.
Nearly 84.9 percent of underwater homeowners were current on their
payments at the end of the second quarter, up from about was 84.8 percent in
the previous quarter.
"Surging home prices this spring and summer, lower levels of inventory,
and declining REO sale shares are all contributing to the nascent housing
recovery and declining negative equity," said Mark Fleming, chief economist
However, more homes for sale are paramount if the recovery is to build up
a real head of steam. Sellers, however, see keeping homes off the market
until they have sufficient equity as more important on a personal
Unfortunately, those motivated by job change, financial emergencies or
other forced selling conditions, go to market. Others are staying put,
paying down the mortgage and perhaps performing value-boosting home
"We currently expect home prices to continue to trend up in August. Were
this trend to be sustained, we could see significant reductions in the
number of borrowers in negative equity by next year," said Anand
Nallathambi, president and CEO of CoreLogic.
The CoreLogic survey also found:
Hard-hit Nevada was at the top of the heap with 59 percent of
mortgaged properties underwater, followed by Florida (43 percent), Arizona
(40 percent), Georgia (36 percent) and Michigan (33 percent).
Of the total $689 billion in underwater mortgages, first lien
loans without home equity loans accounted for $339 billion, while first
liens with home equity loans accounted for $353 billion.
Of the 10.8 million underwater borrowers, 6.6 million hold first
liens without home equity loans. The average mortgage balance for this group
of borrowers is $216,000, the average underwater amount is $51,000.
Of the 4.2 million underwater borrowers possessing both first and
second liens, the average mortgage balance is $300,000 and the average
underwater amount is $84,000.
The bulk of negative equity is concentrated in the low end of the
housing market. For example, for low-to-mid value homes (less than
$200,000), the negative equity share is 32 percent, almost twice the 17
percent for borrowers with home values greater than $200,000.
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