Rising home prices are slowly pulling home owners back from the brink of financial disaster, giving them hope lost equity could return sooner than thought.
Perhaps inadvertently, homeowners are helping pull some recovery strings by staying out of the market.
Data from CoreLogic reveals about one in four of all mortgaged residential properties – 11.4 million, or 23.7 percent were in a negative equity position at the end of the first quarter of 2012.
The homes are considered “underwater” – worth less than the mortgage balance.
Zillow has the number even higher and says one in three, or 16 million homeowners, 31.4 percent, suffer negative equity.
Home equity gains
Both reports, however, indicate their negative equity numbers are down from a year ago when CoreLogic reported 25.2 percent of mortgaged homes were underwater and Zillow said the percentage was 32.4 percent.
“In the first quarter of 2012, rebounding home prices, a healthier balance of real estate supply and demand, and a slowing share of distressed sales activity helped to reduce the negative equity share,” said Mark Fleming, chief economist for CoreLogic.
While investor buying and first-timers cashing in on low mortgage rates are helping boost prices – sales were up 4.5 percent for the year ending in June – low inventories are perhaps a greater factor.
Nationwide, inventories of for-sale single-family homes, condominiums, townhouses and co-ops declined by 19.35 percent in June 2012 compared to a year ago. Inventories were down in all but three of the 146 markets covered by Realtor.com, as prices rose nationwide 2.68 percent.
In some of the hardest hit markets, the inventory drought is bringing substantial relief to home prices.
Home price gains
Realtor.com’s “June 2012 Real Estate Data” report reveals, for year-over-year data:
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• Inventories were down most, by nearly 60 percent in Oakland, CA where home prices are up nearly 15 percent.
• Fresno, CA came in second on the low-inventory list with inventories down more than 49 percent and list prices up 10 percent.
• Bakersfield, CA suffered a more than 47 percent decline in inventories and a more than 7.50 percent increase in home prices.
• The highest inventory decline outside the Golden State was the nearly 43 percent drop in the Seattle area where prices rose nearly 13 percent.
• Two more California metros rounded out the Top 6 low-inventory list: San Jose, CA (Silicon Valley) saw inventories drop nearly 42 percent and prices rise more than 12 percent and, to the north, supplies of homes for sale in San Francisco dropped almost 40 percent, as prices rose nearly 15.5 percent.
• The greatest price gain among metros with the greatest inventory losses came to high-end market Santa Barbara, CA where inventories dropped more than 34 percent and prices soared more than 33 percent.
“This is a meaningful improvement that is driven by quickly improving outlooks in some of the hardest hit markets. While the overall stagnating economic recovery will likely slow housing market recovery in the second half of this year, reducing the number of underwater households is an important step toward reducing future mortgage default risk,” said Fleming.
Sellers sitting it out
In a “normal” market, homeowners are motivated to sell, in part, by rising prices. Unfortunately, the market remains abnormal with too few homeowners enjoying ample equity to make a go of it.
In addition to the inventory drain from buyers cashing in on investment opportunities and affordability, homeowners are helping their equity cause by not rushing to market as demand overwhelms the supply.
Zillow said despite the high rate of negative equity, the majority of underwater homeowners are current on their mortgages. Nine in 10 continue to make their mortgage and home loan payments on time, with just 10.1 percent of underwater homeowners more than 90 days delinquent.
Many homeowners are simply holding own and holding out for greater value.
“While it was disappointing to see negative equity numbers remain so high, it is important to note that negative equity remains only a paper loss for the vast majority of underwater homeowners,” said Stan Humphries, Zillow’s chief economist.
Humphries said negative equity ties homeowners to their homes, forcing them to stay put longer than planned.
“As home values slowly increase and these homeowners continue to pay down their principal, they will surface again,” Humphries said.