How Many Homes Are Still Underwater?

The historic amount of monetary easing from the Federal Reserve has acted like a life preserver to the real estate market, but many Americans still find themselves underwater or anchored to their current homes.

In the first quarter of 2013, the national negative equity rate declined to 25.4 percent of all homeowners with a mortgage, according to Zillow’s Negative Equity Report. While this is an improvement from the previous quarter, another 18.2 percent of mortgaged homeowners do not have enough equity to afford a move.

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Across the nation, a little more than 13 million homeowners with a mortgage owe more than their homes are currently worth. That number rises to 22.3 million homeowners when including homeowners with less than 20 percent home equity. Zillow finds the effective negative equity rate to be 43.6 percent when considering the under-equity crowd.

A homeowner technically reaches positive equity when the market value of the house exceeds the outstanding loan balance by any amount, but the associated costs of listing a house and moving keep many Americans trapped.

“Reaching positive equity, even barely, is an important milestone. But things such as real estate agents’ fees and a down payment for the next home traditionally come out of the proceeds from the prior home’s sale. Without enough equity, these costs will instead have to come out of a homeowner’s pocket, leaving many still stuck,” said Zillow Chief Economist Dr. Stan Humphries. “Looking at the effective negative equity rate could explain why recent, healthy declines in the number of underwater borrowers haven’t yet translated into more homes for sale. The only cure is patience, as rising home values continue to build equity to the point where more homeowners can realistically sell.”

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With the help of centrally-planned interest rates and low inventory levels, home prices have been on the rise. The latest reading from the Standard & Poor’s/Case-Shiller index showed a 10.9 percent jump in home prices for March, compared to the prior year. Home prices in 20 major metropolitan areas rose at their fastest rate since April 2006, and beat expectations calling for a 10.2 percent gain. In fact, all 20 cities posted year-over-year gains for the third consecutive month.

Looking ahead, Zillow predicts the negative equity rate among all homeowners with a mortgage will decline to 23.5 percent by the first quarter of 2014, saving 1.4 million additional homeowners from being underwater.

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