As realty market improves, pool of 'underwater' properties drying up
Newly released statistics have shown that about 791,000 more residential properties across the nation returned to a state of positive equity during the third quarter, and houses in southwest Connecticut have followed the trend.
A study by CoreLogic, a residential property information, analytics and services provider, showed that the nationwide total number of mortgaged residential properties with equity stands at 42.6 million.
In Fairfield County, 11.4 percent, or 23,711 of all residential properties with a mortgage were in negative equity as of the third quarter of 2013 compared with 11.8 percent or 24,317 properties, in the second quarter of 2013, according CoreLogic.
An additional 2.6 percent, or 5,382 residential properties, were in near negative equity for third quarter of 2013, compared with 2.7 percent, or 5,566, in the second quarter of 2013.
While the situation seems to be improving, Betsy Pankulis, broker/owner of Best Realty in Danbury and president of the Northern Fairfield County Association of Realtors, said things could change if the economy falters.
"Prices are starting to very slowly escalate," she said. "We're still not a totally stable economy. In 2014, there will be new regulations involving residential realty, making it more difficult for people to obtain mortgages." But the improving economy has resulted in better opportunities for home sellers, she said.
"We're seeing fewer short sales and few foreclosures," Pankulis said.
Negative equity, often referred to as "underwater" or "upside down," means that borrowers owe more on their mortgages than their houses are worth. Negative equity can occur because of a decline in value, an increase in mortgage debt or a combination of both, according to CoreLogic.
The national aggregate value of negative equity was $397 billion at the end of the third quarter, compared with $430 billion at the end of the second quarter of 2013. This decrease was driven mostly by improvement in home prices.
"We should see a further rebound in consumer confidence and economic growth in 2014 as more home owners escape the negative equity trap," said Anand Nallathambi, president and CEO of CoreLogic, in prepared comments. "Home price appreciation has helped more than 3 million property owners regain equity since the first quarter of 2013." Jeff Romatzick, a real estate agent with Raveis Realty's Milford office and president of the Greater Bridgeport Board of Realtors, has seen that improvement up close.
"There's not as much inventory as in the past," said Romatzick, whose territory is mostly in upper Fairfield County and New Haven County. "You're seeing fewer foreclosures and short-sellers, so there are more fair market sales. You're definitely seeing people with the ability to sell." While cities are showing signs of price increases, they have a larger number of underwater properties, compared with outlying communities, according to Romatzick.
But there are degrees of positive equity, and many property owners may not be securely positioned above the water line, according to CoreLogic.
Of the 42.6 million residential properties with positive equity, 10 million have less than 20 percent equity, CoreLogic reported, and borrowers with less than 20 percent equity could have a harder time finding new financing due to underwriting constraints.
Nevada had the highest percentage of mortgaged properties in negative equity at 32.2 percent in the third quarter, followed by Florida (28.8 percent), Arizona (22.5 percent), Ohio (18 percent) and Georgia (17.8 percent). These top five states combined accounted for 36.4 percent of negative equity in the U.S.
Under-equitied mortgages accounted for 20.4 percent of residential properties with a mortgage in the third quarter nationwide. There were more than 1.5 million residential properties at less than 5 percent equity -- referred to as near-negative equity. Properties that are near negative equity are considered at risk, should home prices fall, according to CoreLogic.
And home prices and sales could be affected by tightened bank lending practices or increased interest rates, according to Romatzick.
"Rising home prices continued to help home owners regain their lost equity in the third quarter of 2013. Fewer than 7 million home owners are underwater with a total mortgage debt of $11.6 trillion," said Mark Fleming, chief economist of CoreLogic, in prepared comments.
Negative equity will decline even further in the coming quarters as the housing market continues to improve, he said.
"It's supply and demand. There are strong buyers -- corporate people moving around. I sold a house in Westport that was on the market one day. It closed last month," said Miner, adding that desirable properties are quickly snapped up.
"Prices are recapping. I've seen appraisers giving better value than in the past." Most towns in Connecticut have seen modest increases in house prices of 1 to 2 percent in the past year, but some towns had year-over-year gains of 7 or more percent, said Katherine Pancak, professor of finance and real estate at the University of Connecticut.
"Looking at Zillow.com data, Fairfield County houses on average gained about 3 percent, and the city of Stamford had a gain of about 7 percent over the past year," she said, adding that rising mortgage rates could impact sales. "I'm confident that in the long run house prices will appreciate enough to overcome the current underwater mortgage problem."