Rising Home Prices Continue to Benefit Seriously Underwater Homeowners

Home PricesAlthough, the continued increase in home prices had its share of negative effects, especially on first-time home buyers looking to enter the market, these price increases have been quite beneficial for existing homeowners who are “underwater” on their mortgage. According to a new report by RealtyTrac, troubled borrowers have continued to benefit from this trend, as the percentage of “seriously underwater” owners continued to decline as of the end of the past year.

A borrower is considered underwater in real estate parlance if they owe more on their mortgage than the estimated market value of their property; in simpler terms, this means a borrower has negative equity on their home.

As per RealtyTrac’s latest report, the percentage of “seriously underwater” borrowers, or those whose amount owing is 25 percent or more higher than the home’s market value, was down to 13 percent at the close of the December 2014 quarter. This represents the lowest percentage of seriously underwater borrowers since RealtyTrac started tracking this metric in the March 2012 quarter. The highest percentage on record was tallied in the June 2012 quarter, when 29 percent of homes with a mortgage were considered seriously underwater.

In many parts of the United States, the improvement in this statistic has been very noticeable. For example, RealtyTrac’s report shows that there were only 23,899 seriously underwater borrowers in Toledo, Ohio, or 18 percent of all homeowners with a mortgage. This is a big decline from the 31 percent recorded in Toledo at the end of 2013, when there was a total of 34,647 borrowers who were seriously underwater on their mortgages.

It does seem that rising home prices were the main factor driving the percentage of seriously underwater borrowers down; according to RealtyTrac vice president Daren Blomquist, median home prices have jumped by 35 percent since they reached their low point in March 2012, thereby helping 5.8 million homeowners improve their home equity situation from their previously seriously-underwater status. For the above Toledo example, the median home price in the city’s metropolitan area increased 5 percent last year to approximately $98,000.

Local Toledo realtors have acknowledged that things have improved in the years since home prices had reached their lowest point. “I have seen industry articles about foreclosures and short sales being down so I think we are whittling away at them,” said Toledo Realtors Association president Penny Kice in an interview with the Toledo Blade. “Locally, I am seeing increases in home values across the market. Some (smaller markets) will see significant increases over others. But inventories also are lower, which always helps the market as a whole.”

On a broader level, Las Vegas ranked as the worst market in terms of seriously underwater borrowers, with 30 percent of homeowners with a mortgage falling under this category. Orlando, Tampa, and Jacksonville – all Florida metros – were second, third, and fourth at 26 percent, 25 percent, and 24 percent respectively. Cleveland was fifth at 24 percent, Miami and Detroit sixth and seventh, also at 24 percent, while Akron, Chicago, and Atlanta rounded up the top ten with a respective 22 percent, 22 percent, and 19 percent of their borrowers seriously underwater.