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Rising Home Prices Help with Underwater Mortgages

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Rising home prices drove down the number of U.S. homeowners struggling with underwater mortgages in the second quarter, leaving 14.5 percent of residential properties with a mortgage in negative equity, a report from CoreLogic showed on Tuesday. The rate was down from 19.7 percent in the first quarter, 22.3 percent a year ago and 26 percent in the fourth quarter of 2009, which was the most since CoreLogic began keeping statistics earlier that year.

Negative equity, another term for underwater mortgage, refers to properties whose value is less than what is owed on the mortgage. Negative equity rates spiked in the aftermath of the housing crisis, which began in earnest five years ago and set off a multiyear free-fall in prices. But recovery in the sector over the past year has helped improve some homeowners’ standings. There were 7.1 million underwater homes in the second quarter compared with a downwardly revised 9.6 million in the first three months of 2013, CoreLogic said.

According to the S&P/Case Shiller composite index of 20 metropolitan areas, prices were up 12.1 percent in the 12 months to June. “Price appreciation obviously had a positive impact on home equity over the first half of 2013, especially in the second quarter,” CoreLogic Chief Executive Anand Nallathambi said in a statement.

About 3.5 million homeowners regained positive equity in the first half of the year, the report said.
Nevada had the highest percentage of properties in negative equity in the second quarter at 36.4 percent. Rounding out the top five were Florida, Arizona, Michigan and Georgia. These five states combined accounted for 34.9 percent of negative equity in the United States.

The housing market, however, is far from fully healed. In addition to the 7.1 million homes with underwater mortgages, another 1.7 million were considered to be in near-negative equity in the second quarter, a description for properties with less than 5 percent equity. Even a modest fall in prices could put those mortgages underwater, and economists expect a recent rise in mortgage rates to slow the pace of price gains in the months ahead.

Mark Fleming, CoreLogic’s chief economist, said that a slowing in price gains could slow the rate at which homeowners return to positive equity.