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Real Estate Market Rebound ~ More Homeowners Dig Out
Rising home values have lifted more borrowers out of the hole of owing more than their properties are worth, an encouraging sign for an economy still closely tied to the health of the housing market.
The number of “underwater” homeowners in the fourth quarter of 2012 declined by 1.7 million from a year earlier, meaning 1.7 million U.S. households have regained home equity, according to data released Tuesday by CoreLogic, CLGX -0.79% a research company. Overall, the company said 21.5% of households with a mortgage were underwater at the end of 2012, down from 25.2% at the end of 2011.
A rebound in the value of Matthew Oropeza’s Phoenix home meant he didn’t have to sell while it was worth less than he owed on it.
The housing sector continued to show strength in February, helping U.S. Futures hold onto their gains. Alexandra Scaggs has details.
When consumers have equity in their homes, they feel more optimistic about their finances and become more likely to spend money on other goods and services, which helps boost the economy. Having equity also makes it easier for homeowners to take advantage of low interest rates by refinancing their mortgages, which frees up cash that can then be used on other items.
“Home equity is the biggest source of wealth, so if equity is increasing that has a very large effect on household spending and consumer psychology,” said Sam Khater, an economist at CoreLogic, adding that this knock-on effect filters down to everyone from real-estate agents to furniture stores.
The declining number of underwater households is one of several changing housing trends that have made real estate a much bigger contributor to economic growth. After dragging on growth since 2006, the portion of gross domestic product that includes homebuilding contributed just over a quarter of a percentage point to the nation’s growth last year.
“All the things that fed on the downside feed positively on the upside,” said Joseph LaVorgna, chief U.S. economist for Deutsche BankDBK.XE +0.15% .
Of course, some newly above-water households are just barely at breakeven and therefore are a long way off from being able to change their finances in any significant way. And the overall ranks of those underwater remain large, at about 10.4 million, down from 12.1 million at the end of 2011, according to CoreLogic.
But for those whose lives were put on hold while their homes were upside down, moving above water has come as a huge relief.
Matthew Oropeza is one of them. In 2009, the 30-year-old business-systems analyst paid $96,000 for his Phoenix home. Over the next two years, he watched prices continue to fall, until similar homes in his area were selling for as low as $64,000.
Realizing he was underwater, and not wanting to lose his 15% down payment, Mr. Oropeza says he turned down a number of job opportunities in places including Pennsylvania and Oklahoma. “I decided I didn’t want to short sell and I didn’t want to take the loss,” he says. “It was going to take a couple years of work just to pay the debt of the house so it was like, ‘Am I really progressing here?’ “
In December, after Mr. Oropeza’s employer required him to move to an office in Orange County, Calif., he finally gave in and called real-estate agent Greg Markov, who specializes in short sales. “We reviewed the numbers and I told him, ‘I got good news. I think this is going to be a breakeven thing and you might be able to walk away with some money,’ ” said Mr. Markov. Mr. Oropeza has a $105,000 offer on the home and expects to close the sale within two weeks.
While home prices are rising in most markets across the country, few have seen as big a rise as Phoenix, which was among the nation’s hardest-hit markets during the bust. According to the closely watched Case-Shiller home-price index, prices in Phoenix jumped 23% in 2012.
Prices started to firm in Phoenix last year as investors poured into the market to buy heavily discounted homes for cash. Those gains have steeply reduced the inventory of homes for sale to just over two months’ supply at the current sales pace, according to The Wall Street Journal’s quarterly housing survey. The shortage has pushed prices even further by increasing buyer competition.
With so little inventory to sell, Luis Solis, a Phoenix real-estate agent, is hoping the home-equity revival will entice more sellers into the market. Mr. Solis recently printed up flyers that he plans to send to select homeowners in the downtown Phoenix area where he specializes. His pitch includes two similar homes that sold for more than the current residents paid. The message: If you think you’re underwater, think again.
“There are people who just a couple years ago were 150 grand underwater, and depending on the price, they’re even now,” says Mr. Solis. “I want to get specific with people. This is a way to get their attention.”