Rising Home Prices Buoy Underwater Mortgages

A historically small national inventory of new homes, sluggish foreclosure proceedings and a slow-to-recover homebuilding industry are driving home prices up across the U.S. Increasing values of homes means that an increasing number of home owners "upside down" on their mortgages are finding themselves right-side-up for the first time in years.

Increasing home prices lifted 200,000 homes into a positive equity position in the fourth quarter of 2012, adding to a total of 1.7 million homes that regained equity last year, according to a report on negative equity report released March 19 by CoreLogic.

There are 38.1 million homes nationwide with positive equity mortgages, while 10.4 million – or 21.5 percent of all properties with a mortgage – remain in negative territory. Another 11.3 million, or 23.2 percent, have equity at a rate below 20 percent.

(Negative equity, often referred to as "underwater" or "upside down," means that borrowers owe more on their mortgages than their homes are worth. Negative equity can occur because of a decline in value, an increase in mortgage debt or a combination of both.)

CoreLogic said that 1.8 million of the underwater homeowners have a loan to value ratio (LTV) between 100 and 105 percent. Should home prices increase another 5 percent, these "near equity" homeowners would be back in a positive equity position. There were 4.4 million properties, or 9.1 percent, with LTVs exceeding 125 percent in the fourth quarter.

The aggregate of negative equity nationwide decreased from $670 billion at the end of the third quarter to $628 billion at the end of the fourth quarter of 2012. At the end of the fourth quarter of 2011, the negative equity aggregate was $743 billion.

"The scourge of negative equity continues to recede across the country," Anand Nallathambi, president and CEO of CoreLogic. "There is certainly more to do, but with fewer borrowers underwater, the fundamentals underpinning the housing market will continue to strengthen. The trend toward more homeowners moving back into positive equity territory should continue in 2013."

The majority of home equity is concentrated in the high end of the market. Eighty-six percent of homes valued at more than $200,000 have equity, compared to 72 percent of homes valued below that level.