Underwater mortgages are one of the long-standing ramifications of the 2000s housing crash. As you can recall, prices significantly increased from 2002 through ’06, with credit easily available. After the crash, average home prices plummeted, especially in areas like Las Vegas hit hard by foreclosures, and many homeowners, even those regularly making monthly payments, were stuck with properties no longer worth as much as they used to be.
However, according to a study from Zillow over the past week, the underwater mortgage situation is improving, albeit slowly. As the findings show, 2 million Americas got out of negative equity last quarter as the result of increasing home prices. Over the past year, the level of negative equity changed from 31.1 percent to 27.5 percent last quarter. In total, the number of homeowners with underwater mortgages decreased from 15.7 million to 13.8 million over 12 months.
A factor lessening negative equity is the rising prices in some housing markets. Areas previously hit hard by rampant foreclosures are now seeing average home prices go up, thus making the market more competitive.
Nevertheless, this news has both positive and negative aspects. As a counterpart to the improvements, underwater amounts on existing mortgages total over $1 trillion. 27.5 percent negative equity, as well, is significantly higher than it should be. Zillow’s chief economist Stan Humphries points out, “[A]nd millions of homeowners have a very long way to go to get back above water, even with current robust levels of home value appreciation in most areas.”
Although underwater mortgages have had a negative effect on the housing market over the past six years, the homeowners behind them have actually prevented the crash from being worse than it could have been. The Los Angeles Times points out that, even with these higher loans, these homeowners continue to make monthly payments on time, thus reducing the amount of foreclosures on the market.