Since last year, more than one million homes have found their way out of negative equity, a report from CoreLogic revealed.
Since the second quarter of 2014, when 5.4 million homes, or 10.9 percent of all residential mortgages, were underwater, strong home price appreciation has ferried 1.1 million into equity – a decrease of 19.4 percent of underwater homes. The total number of homes in negative equity now stands at 4.4 million, or 8.7 percent of all mortgaged homes.
The aggregate value of the gained equity has been tremendous. In Q2 2014, the value of negative equity hovered around $350 billion. However, in the last 12 months, that figure has fallen 11.6 percent to only $309.5 billion.
More than one million mortgages, or 2.3 percent of all residential mortgages, are approaching the threshold into negative equity, but with rising home prices, that number is dwindling with each quarter.
At the state level, portions of Massachusetts’ market are performing reasonably well, as evidenced by the state’s average loan to value ratio of 54.3 percent, which is below the nation’s 57.3 percent LTV. However, the state’s equity share is only 90.8 percent, 0.5 percent below national levels, which suggests that equity may be balanced towards the higher end of the market.
Near negative equity in Massachusetts is at 9.2 percent, while near equity share is at 1.7 percent.
Equity Not Equal
CoreLogic’s report went on to describe the state of national home equity in great detail, including:
- Of the total $309 billion in negative equity, first liens without home equity loans accounted for $168 billion, or 54 percent, in aggregate negative equity, while first liens with home equity loans accounted for $142 billion, or 46 percent.
- Approximately 2.6 million underwater borrowers hold first liens without home equity loans. The average mortgage balance for this group of borrowers is $239,000 and the average underwater amount is $64,000.
- Approximately 1.7 million underwater borrowers hold both first and second liens. The average mortgage balance for this group of borrowers is $303,000 and the average underwater amount is $82,000.
One particularly telling detail of the report was how equity is currently distributed among housing tiers, as the majority is concentrated at the higher end of the market. An example CoreLogic gives is that 95 percent of homes valued greater than $200,000 have equity, compared with 87 percent of homes valued at less than $200,000.
Foreclosures Improve Equity
“For much of the country, the negative equity epidemic is lifting,” said CoreLogic CEO and President Anand Nallathambi.
The company’s chief executive said that the “relentless rise in home prices over the past three years” has been the market’s primary equity driver. But Frank Nothaft, chief economist for CoreLogic, added that foreclosure completions have also helped fished mortgages out from underwater.
“Home price appreciation and foreclosure completions both reduce the number of homeowners with negative equity, the latter because most homeowners who loost homes through foreclosure had some level of negative equity,” he said. “Between June 2014 and June 2015, the CoreLogic national Home Price Index rose 5.6 percent and we reported the number of homes completing foreclosure proceedings exceeded one-half million.”
CoreLogic researchers have predicted that home prices will rise an additional 4.7 percent over the next year, and Nallathambi said that if that happens, “800,000 homeowners could regain positive equity by July 2016.”