Realty Views By Terry Ross

Home Equity Report Shows A Slow TrendTerry Ross, Realty Views

November 5th, 2013 – While there has been some good news for those few home sellers who ventured into the market this year, a recent report by RealtyTrac®, one of the nation’s largest providers of real estate data, shows that the improvement in the equity position for homeowners is a slow one and there are still many houses in this country seriously underwater, with mortgages valued at much more than the properties.

According to RealtyTrac’s September U.S. Home Equity & Underwater Report, 10.7 million residential homeowners nationwide owe at least 25 percent more on their mortgages than their properties are worth, and are considered “deeply underwater.”

Another 8.3 million homeowners are either slightly underwater or slightly above water, putting them on track to have enough equity to sell sometime in the next 15 months without resorting to a short sale. These include homeowners with a loan to value (LTV) ratio from 90 to 110 percent – meaning they have between 10 percent positive equity and 10 percent negative equity. They represent 18 percent of all U.S. homeowners with a mortgage, as of the beginning of September.

The 10.7 million residential properties with an LTV ratio of at least 125 percent represented 23 percent of U.S. residential properties with a mortgage, down from 11.3 million deeply underwater properties representing 26 percent of all mortgaged residential properties in May 2013, and down from 12.5 million deeply underwater properties representing 28 percent of all mortgaged residential properties in September 2012.

“Steadily rising home prices are lifting all boats in this housing market and should spill over into more inventory of homes for sale in the coming months,” said Daren Blomquist, vice president at RealtyTrac. “Homeowners who already have ample equity are quickly building on that equity, while the 8.3 million homeowners on the fence with little or no equity are on track to regain enough equity to sell before 2015 if home prices continue to increase at the average rate of 1.33 percent per month since bottoming out in March 2012.

While things are improving, progress is slow and is mirroring the U.S. economy in general with real progress looking to be a couple of years down the road.

“In addition, nearly one in four homeowners in foreclosure has at least some equity, giving them a better chance to avoid foreclosure without resorting to a short sale – assuming they realize they have equity and don’t miss the opportunity to leverage that equity,” Blomquist added. “Even homeowners deeply underwater have reason for hope, with about 150,000 each month rising past the 25 percent negative equity milestone – although it will certainly take years rather than months before most of those homeowners have enough equity to sell other than via short sale.”

Actually, more than 126,000 properties in the foreclosure process nationwide had an LTV of 100 percent or lower in September, representing 24 percent of all homes in the foreclosure process. The states with the highest percentage of foreclosures with equity included Oklahoma (54 percent), Hawaii (51 percent), New York (47 percent), and Texas (46 percent).

States with the highest percentage of deeply underwater homes (LTV of 125 percent or higher) included Nevada (46 percent), Illinois (40 percent), Florida (40 percent), Michigan (38 percent), Rhode Island (34 percent) and Ohio (31 percent).

The metro markets with the highest percentage of homes that are regaining equity (LTV between 90 and 110 percent) included Omaha (29 percent), Colorado Springs (29 percent), Tulsa (29 percent), Little Rock (28 percent) and Raleigh (28 percent).

Across the country, 7.4 million homeowners with a mortgage had 50 percent equity or more, representing 16 percent of all homeowners with a lien on their property. Metro markets with the highest percentage of homeowners with at least 50 percent equity included Honolulu (36 percent), San Jose (35 percent), Poughkeepsie, New York (30 percent), Pittsburgh (29 percent), San Francisco (29 percent) and New York (27 percent).

From these numbers it is apparent that markets throughout the country are having varying degrees of success when it comes to making a comeback where sellers have at least a fighting chance to recoup some equity from their home investment. But the overall trend is that recovery to more typical equity positions will take at least a few years – and not months.

(Terry Ross, the broker-owner of TR Properties, will answer any questions about today’s real estate market. E-mail questions to Realty Views at terryross1@cs.com or call  562/498-1049.)