Nearly 2 million Americans got out of negative equity positions as home prices rose last quarter, according to new estimates.
Negative equity fell to 27.5% of all U.S. homeowners with mortgages in last year's fourth quarter, compared with 31.1% during the same period a year earlier, according to data from real estate website Zillow.
"Underwater" homeowners -- those who owe more on their mortgages than their homes are worth -- have played a counterintuitive role in the housing market’s recovery, helping boost home prices in an unexpected way.
Rather than walking away from their properties en masse, many of these borrowers have continued paying their home loans, even when they are stuck in high-interest-rate loans.
As foreclosures have eased, for-sale inventory has plummeted. In many markets, the level of competition for a home is now so severe, it’s reminiscent of the bubble days.
“Freed from negative equity, homeowners will have more flexibility, and some will likely choose to list their home for sale, helping to ease inventory constraints and moderating sometimes dramatic, demand-driven price increases in some markets,” said Stan Humphries, chief economist for Zillow.
“But negative equity is still very high,” Humphries said, “and millions of homeowners have a very long way to go to get back above water, even with current robust levels of home value appreciation in most areas.”
Some experts are predicting the supply constraint will remain in place this spring, when the traditional home-selling season kicks off.
According to estimates by Zillow, about 13.8 million homeowners were still underwater on their homes in the fourth quarter of 2012. That was down from 15.7 million a year earlier.
U.S. homeowners with mortgages were collectively underwater by more than $1 trillion at the end of 2012.
Home prices are rising rapidly in the West, and Zillow forecasts that of the nation’s biggest metro areas, Los Angeles -- which includes Los Angeles and Orange counties -- will produce the most homeowners freed from negative equity, with 72,696; followed by the Inland Empire, with 62,407; Phoenix, with 43,044; and Sacramento, with 33,356.
The Los Angeles area has a lower percentage of borrowers underwater -- 24.3% -- than the national average. The Inland Empire has about 43.8% of mortgage holders underwater.
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Fewer Americans are stuck in underwater mortgages
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Fewer Americans are stuck in underwater mortgages
