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Negative equity key to housing roller coaster?

 

WASHINGTON – May 28, 2014 – One reason for the sluggish housing recovery: homeowners can't sell their homes because they don't have enough equity to do so yet, The Wall Street Journal reports.

Nearly 10 million U.S. households – about 18 percent of homeowners with a mortgage – are still underwater, meaning their home is worth less than their mortgage. Home prices are rising, and the number of underwater homeowners is declining, but some still feel stuck.

"Most move-up homeowners typically use their home equity to cover broker fees, closing costs, and a down-payment for their next home," The Wall Street Journal reports. "Without those funds, many homeowners can't sell."

Some housing analysts say that understanding negative equity is key to understanding a lot of the distortions occurring in the current housing market.

The picture has been gradually improving, however. While the number of underwater homeowners remains high, some reports show more homeowners regaining equity. About 4 million homes returned to positive equity in 2013, boosting the total number of non-underwater U.S. homes to about 42.7 million, according to a CoreLogic report.

"The plight of the underwater borrower has improved dramatically since negative equity peaked in December 2009 when more than 12 million mortgaged homeowners were underwater," says Mark Fleming, chief economist for CoreLogic. "Over the past four years, more than 5.5 million homeowners have regained equity, reducing their risk of foreclosure and unlocking pent-up supply in the housing market."

Source: "Negative Home Equity Impedes Housing Recovery," The Wall Street Journal (May 24, 2014) and "CoreLogic: 4 Million Homeowners Back Above Water in 2013," HousingWire (March 6, 2014)

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Related Topics: Economy