A sign advertises a house for sale on April 23, 2009 in Pasadena, California. About half of all homes sold last month were sold to first-time homebuyers but hopes of a Spring recovery in the housing market were dampened by a report by the National Association of Realtors that existing home sales fell 3 percent in March despite near-record-low mortgage rates and home prices that are the lowest in years. The median sales price in March was $175,200, down from $200,000 a year ago. (Photo by David M
Julie Schmit, USA TODAY
- Number of underwater home loan borrowers drops below 10 million
- Rising home prices raise homeowner equity, help economy
Demonstrating the power of rising home prices, the number of underwater homeowners has dropped below 10 million for the first time in more than at least three years.
Nationwide, 9.7 million, or 19.8% of homeowners with a mortgage, owed more on their homes than they were worth as of March, says market researcher CoreLogic.
That's down from 12.1 million at the end of 2011, just as home price gains were kicking off in many markets.
All told, the nation's negative equity decreased more than $50 billion to $580 billion as of March, down from $631 billion in December, CoreLogic says.
Rising home prices, up 12.1% in April year-over-year, have lifted 1.7 million home loan borrowers above water in the past year, the data show.
If prices continue to rise, more borrowers will likely list homes for sale. That will moderate price gains in many of the fast-appreciating markets, says Mark Fleming, CoreLogic chief economist.
The declining ranks of underwater homeowners are a plus for the economy.
Borrowers with equity in their homes are less likely to default on those loans, they're more avid spenders and they're more able to sell homes and move to other locations to pursue job opportunities, says Mark Zandi, chief economist of Moody's Analytics.
With so many borrowers remaining underwater, "We still have a long way to go ... but we are making quick progress," Zandi says.
As homeowners gain equity in their homes, they can also refinance and take advantage of lower interest rates to reduce their mortgage costs, says Christopher Thornberg, economist at Beacon Economics. Those people then have more money to spend on other things.
As of December, 45% of homeowners with mortgages still had loans with interest rates above 5%, CoreLogic data show. The monthly average rate on a 30-year, fixed-rate loan has been below 4% since late 2011, Freddie Mac data show.
States that suffered the biggest run-ups in home price gains - then fell hard after the housing bubble burst - still lead in terms of underwater borrowers.
As of March, Nevada had the highest percentage of mortgaged properties that were underwater, at 45.4%, followed by Florida at 38.1%. Michigan, Arizona and Georgia round out the top five, all over 30%.
Since the end of last year, there's been some change in the top five metropolitan regions with the most underwater borrowers, however.
Phoenix, which has led the home price recovery, dropped out of the top five in the first quarter, as did Riverside, Calif. In April, home prices in those cities were up 19.2% and 16.5%, respectively. Both cities were in the top five at the end of 2012.
Instead, Chicago and the Warren-Troy, Mich., area joined Tampa, Miami and Atlanta as the top five underwater metro areas, CoreLogic says. The Tampa area led with 41.1% of mortgaged homes underwater.
In addition to the 9.7 million borrowers who are still underwater, an additional 11.2 million homeowners have less than 20% equity in their homes, CoreLogic says.
Those homeowners would likely have a hard time refinancing their homes - or getting a loan to buy a new one - due to mortgage loan restrictions.