Escrow Trust Advisors | Rising Prices Assist Homeowners With Negative Equity
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Rising Prices Assist Homeowners With Negative Equity

Rising Prices Assist Homeowners With Negative Equity

Home prices have continued to climb over the past year, helping some homeowners with negative equity finally bring their heads above water. Economists are hopeful that negative equity will continue to shrink in the coming months. In a recent report by Capital Economics, they said, “The negative equity problem is still crippling many home owners and the wider economy.”

According to the report, 25% of homeowners still owe more than their home is worth, and nearly half fail to meet the 80% loan-to-value (LTV) ratio that is required to take advantage of a standard refinance. But despite these numbers, Capital Economics says they still see the potential for approximately 3.5 million homeowners to rise above their negative equity issues in the coming year.

Rising prices will continue to drive this aspect of the recovery. In the past year, CoreLogic reports that prices have risen 5%, and many industry experts say that the biggest price gains are being realized in places that were hit the hardest by the downturn in the economy. Arizona and Florida are two examples where about 40% of homeowners are underwater.

Any increase in housing prices is good news for those with negative equity. If home prices were to increase by 10%, nearly 3.5 million borrowers would be helped out of negative equity, while about 6 million would be eligible for standard refinancing. Adds Capital Economics, “The faster prices rebound, the quicker the negative equity problem will be resolved.”