THREE REASONS WHY THIS MATTERS TO YOU
1. Is your mortgage still underwater? As home values rise, more mortgage borrowers will regain equity. However, home values are not expected to fully recover until 2018.
2. There's expected to be a slower rate of home value appreciation going forward as the housing market gets further away from the crash. Thus if your mortgage is underwater, it will take longer for the value of your house to rise.
3. Not underwater? This still impacts you. The housing market is tied closely to overall economic growth, and historically high levels of negative equity above 20 percent nationwide means those people upside down on their house aren't spending as much money as they could.
Home sales in the Dayton area climbed 11 percent in October, but the average price of the homes sold fell nearly 5 percent from October 2012 — a signal that area sale prices may have peaked.
That’s not necessarily good news for homeowners whose mortgage balances continue to exceed the value of their homes.
Fewer Ohio homeowners are “underwater” on their mortgages today than a year ago, thanks in part to a run-up in home sale prices over the past two years. But with sale prices now falling, fewer homeowners could regain equity in their homes and eliminate being underwater on their loans.
The average price of 1,162 single-family homes sold in the Dayton area last month was $117,852, down 4.9 percent from the average sale price in October 2012, according to figures released Wednesday by the Dayton Area Board of Realtors.
The Dayton area includes Greene, Montgomery, Preble and parts of northern Warren County.
Still, last month’s average price is 26 percent higher than the low of $93,762 set in February 2009 following the housing market collapse, the realtors’ group said. Prices remain below the peak price of $150,919 reached in June 2007.
The higher home sale prices over time has helped local homeowners regain equity in their homes.
Through the end of September, 29.8 percent of Montgomery County homeowners had negative equity in their homes, according to figures released today by Zillow Inc., a Seattle-based real estate data company. That compares with 36.7 percent a year ago.
In Greene County, 20 percent remained underwater as of Sept. 30, compared with 24.7 percent a year ago. In Miami County, 18.6 percent of homeowners in Miami County had negative equity at the end of September, compared with 23.9 percent last year. In Preble County, the figure was 28.3 percent this year versus 25.7 percent last year, according to Zillow.
“Certain neighborhoods are increasing faster than others, but overall I think (the local housing market) is improving,” said David Gunn, head of mortgage for Fifth Third Bank’s greater Cincinnati affiliate, which includes Cincinnati, Dayton and Springfield.
“Our part of the country didn’t have the great highs that some others parts of the county had, and we didn’t have the great lows that some parts had, so we’ve been relatively steady,” Gunn said.
“The steep peak-to-trough losses experienced by most markets during the housing bust produced a lot of negative equity,” said Svenja Gudell, director of economic research for Zillow. “These high levels of negative equity in turn caused inventory shortages across the nation, as many homeowners were locked into their homes being deeply underwater. This constrained supply in for-sale homes, paired with healthy demand by consumers and investors over the summer, caused bidding wars and price spikes, increasing home values at a very fast rate.”
As a result, the national negative equity rate fell at its fastest pace ever in the third quarter, dropping to 21 percent of all homeowners with a mortgage, Zillow officials said.
However, the rate at which home prices are growing back is expected to slow in 2014, according to Zillow.
Projections are for an index of home values nationally to end 2013 up 6.7 percent on average year-over-year. That’s before falling to 4.3 percent appreciation in 2014 and eventually 3.4 percent appreciation by 2018, according to Zillow.
The company conducted a survey of more than 100 economists and investment strategists to come up with those estimates.
The experts surveyed said they expect home values in the U.S. to fully recover in the first quarter of 2018.
“As home value appreciation rates slow, the rate at which negative equity is reduced will also slow. This means that negative equity will stay with us for a while, especially in areas where homeowners are very deeply underwater,” Gudell said.
High levels of negative equity and tight financing is tied to slower economic growth that affects everybody, said LaVaughn Henry, vice president and senior regional officer of the Cincinnati Branch of the Federal Reserve Bank of Cleveland.
Underwater homeowners are more at risk for foreclosure and have less spending power, Henry said. They have more difficulty selling their homes because they can’t get a high enough sales price to pay the loan off without coming up with the cash out-of-pocket. Moreover, for most people, their house is their single biggest asset and acts as a source of wealth.
Appreciation rates of 4 to 5 percent a year “means we’re looking at another three to four years before these homes with negative equity become right-sided again,” Henry said.
“When you have negative equity, it means consumption is going to grow slower,” he said. “If total consumption isn’t growing as fast, that means total demand for labor isn’t growing as fast.”
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