American homes slowly emerging from under water

April 05th, 2013

New figures show that the net number of under-water mortgages is continuing to decline, which opens up new financing options for those homeowners. However, over 20 million U.S. homeowners still lack sufficient equity to consider a full range of refinancing and home equity options.

Highlights on the re-emergence of equity

Real estate data and analytics company CoreLogic released figures for 2012 showing that it was a year when equity steadily began to re-emerge in the U.S. real estate market. Still, the picture is still far from completely sunny, as many Americans are still constrained by mortgage debt. Here are some key points from the CoreLogic report:

  1. 1.7 million U.S. homes moved from negative to positive equity in 2012.
  2. 200,000 of those reached positive equity in the fourth quarter, which unfortunately suggests that the pace slowed toward the end of the year.
  3. 10.4 million homes are still considered under water, meaning they have negative equity.
  4. Another 11.3 million homes lack the 20 percent equity necessary for many financing options.

The re-emergence of equity is a function of both rising real estate prices and homeowners steadily paying down their mortgages. Homeowners looking for their mortgages to emerge from under water should both keep an eye on their local real estate markets and follow a mortgage amortization chart to see when they may have reached the point where home value finally exceeds the remaining loan balance.

Flexibility for homeowners

As homeowners see mortgages emerge from under water, and especially as they build equity back to the crucial 20 percent mark, they have the flexibility to consider new financing options, such as:

  1. Refinancing. If you haven't yet been able to take advantage of lower mortgage rates, use a refinance calculator when your mortgage is once again above water to see if you could save money at the level of mortgage rates when that happens.
  2. Home equity. This can be a relatively inexpensive source of credit, but use it sparingly. According to CoreLogic, over a third of the homes which still have negative equity are in that condition at least in part because of second mortgages.

The recovery of the housing market is steadily giving some homeowners new financing options; but for millions more, it still can't happen fast enough.

Posted By :

Richard Barrington has earned the CFA designation and is a 20-year veteran of the financial industry, including having previously served for over a dozen years as a member of the Executive Committee of Manning & Napier Advisors, Inc. Richard has written extensively on investment and personal finance topics.

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