Homeowners' equity is again on the rise after three years of unprecedented shrinkage
But large numbers of borrowers still owe more on their mortgages than their homes are worth.
February 14, 2010|
By Kenneth R. Harney
Reporting from Washington — With all the bad news about underwater homeowners and strategic walkaways, you might think that U.S. homeowners' equity holdings are continuing to slide. But a little-publicized recent statistic on real estate is that home equity is again on the rise.
Is that some piece of rosy propaganda put out by housing lobbyists to stimulate more home buying? Not unless you consider Federal Reserve economists to be shills for the real estate industry. The Fed conducts massive ongoing research into mortgage balances and home-value changes in hundreds of local markets around the country, and reports its findings quarterly.
According to the Fed's most recent "flow of funds" survey, homeowners' net equity grew by nearly $1 trillion from the recession's nadir in the first quarter of 2009 through the third quarter. From June 30 through Sept. 30, equity rose by $418 billion.
That's not impressive compared with the quarterly increases registered during the hyperinflationary housing boom years, but it could signal something important: After three years of unprecedented shrinkage in home equity -- and three years of rapid expansion in the number of underwater borrowers with negative equity -- there are signs the down cycle may be shifting.
Last week, online real estate valuation researcher Zillow.com released its latest quarterly numbers on negative equity in major markets. The findings were sobering, but the study also offered some hints of improvement. The overall negative equity rate among U.S. homeowners remained flat in the fourth quarter at 21.4%. But like the Fed's numbers, that represented a decrease from the first two quarters of last year, when 22% and 23% of owners owed more on their mortgages than the estimated market value of their real estate.
Zillow's study found that in dozens of housing markets -- including Washington, Los Angeles, San Francisco, Detroit, Miami, San Jose, Seattle and Tampa-St. Petersburg -- the percentage of homeowners with negative equity appears to be on the decline.
Some of the largest declines occurred in cities hardest hit by the recession and the housing bust -- Ann Arbor, Mich. (down 9 percentage points), Riverside (down 5.7 points) and Phoenix (down 2 points). Florida markets that have struggled with major devaluations also saw significant improvement in negative equity ratios in the fourth quarter.
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