MARKET WATCH: The Final Hurdle?
With home prices firming around the country, negative equity appears to be the final hurdle to clear before selling, buying, and financing increase. CoreLogic notes that home-price depreciation over the past four years increased negative equity by more than $6.1 trillion. CoreLogic also reports that nearly 11 million, or 23 percent, of all residential properties with mortgages were in negative equity at the end of the first quarter of 2011.
There are two obvious problems with negative equity: (1) sellers are reluctant to sell if they have to go to the closing table with money and (2) home owners with negative equity are more difficult to refinance. The good news is that, despite the large numbers, the negative equity share of the market has stabilized over the past year and is relatively concentrated in a few states: Arizona , Florida , Michigan , and California .
We expect negative equity to become less negative going forward through a decline in foreclosures, increased amortization, and continued price appreciation. It will take time, to be sure, but improvements will and are occurring, which is why we continue to be bullish on the outlook for housing and mortgage lending.
