Fading Negative Equity May Boost Inventory

IRVINE, CA-Fewer underwater homeowners translates to increasing equity, which is a step in the right direction for the housing industry, experts say. As negative equity fades and positive equity increases, more homeowners will be able to reenter the home-selling and buying market, which is good news for an industry starving for inventory.

As GlobeSt.com reported earlier today, 10.7 million residential homeowners nationwide owe at least 25% or more on their mortgages than their properties are worth, according to RealtyTrac. Also, 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, the firm reports.

While 10.7 million homeowners may sound like a daunting figure, representing 23% of US residential properties with a mortgage, this number is down from 11.3 million deeply underwater properties representing 26% of all residential properties with a mortgage in May and down from 12.5 million deeply underwater properties representing 28% of all residential properties with a mortgage in September 2012, according to the firm.

“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,” says Daren Blomquist, VP of RealtyTrac. “Even homeowners deeply underwater have reason for hope, with about 150,000 each month rising past the 25% 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.”

Rich Cosner, president of Prudential California Realty, says that for the past few years, “many people have been unable to sell their homes and upgrade due to lack of equity or in some cases negative equity. “With the tremendous growth in equity over the past year, many homeowners are now able to sell their homes and re-buy, which is a very positive outcome for the real estate market.”

Craig King, COO of Chase International, which covers the Reno and Lake Tahoe markets, adds that negative equity continues to be an issue in the Reno-Sparks market, “however the situation is improving due to strong price increases. The effect of rising home prices and homeowners with resurfacing equity are both encouraging trends. We believe some of these individuals are starting to show up in our sales activity right now as part of a move-up market. There has been no move-up market in the area since 2006, so we are excited about that.”