Equity Acceleration Slows, Are Some Owners Cashing Out?
The rich get richer? rnWhen it comes to equity that appears to be the case according torninformation released by RealtyTrac on Thursday. The company’s U.S. Home Equity & UnderwaterrnReportrnshows an increase in the number of “equity-rich” properties, those with atrnleast 50 percent equity rose by over a million between the second quarters ofrn2014 and 2015.</p
At the end of the most recent period there were an estimatedrn10.9 million properties considered equity rich, approximately 19.6 percent ofrnall properties with a mortgages, compared to 9.9 million or 18.9 percent at thernend of Q2 2014. The latest number isrnlower than both of the previous quarters; there were 11.1 million suchrnproperties 19.8 percent) at the end of the first quarter and 11.3 million orrn20.3 percent in Q4 2014. </p
Daren Blomquist, vicernpresident at RealtyTrac, does not view the two quarter slide, which was alsornreflected in a downturn in numbers of properties with lesser amounts of positivernequity, as necessarily bad news. “Althoughrnthe number of equity rich homeowners with a mortgage has increased by 1 millionrncompared to a year ago, that number dropped by nearly 300,000 between the endrnof 2014 and the middle of 2015,” he said. “The number of homeowners with arnmortgage who have at least 20 percent equity has dropped by more than 900,000rnduring the past six months, indicating that homeowners who have gainedrnsubstantial equity thanks to the housing price recovery over the past threernyears are taking advantage of that newfound equity. Some are leveraging thatrnequity into a higher LTV refinance or a move-up purchase, some may berndownsizing into an all-cash purchase and some may be cashing out ofrnhomeownership altogether. Those homeowners cashing out of homeownership altogetherrnwould explain why the nation’s overall homeownership rate continued to declinernin the second quarter even as homeownership rates among millennials increased.”</p
Equity rich properties were locatedrnprimarily in communities that have seen strong price growth on top of prices alreadyrnabove the national average. San Jose sawrnby far the greatest growth in numbers of equity-rich properties, up 43.8rnpercent followed by neighboring San Francisco at 38.3 percent. Other communities high on the list arernHonolulu (36.7 percent), Los Angeles (32 percent), and New York (30.7 percent).rn</p
Despite higher home prices negativernequity continues to exist as a significant problem. RealtyTrac said that at the end of the secondrnquarter there were 7,443,580 properties that were seriously underwater – with mortgagernbalances at least 25 percent higher than the property’s estimated value. This is 13.3 percent of all mortgagedrnproperties. This was an increase fromrnthe 7,341,922 (13.2) percent of seriously negative situations in the previousrnquarter but significantly lower than the just over 9 million underwater homesrnin the second quarter 0f 2014, 17.2 percent. rnThe most recent quarter was the second consecutive one in which thernnumber of underwater properties slightly increased. The number and share ofrnseriously underwater homes peaked in the second quarter of 2012 at 12.8 millionrnseriously underwater homes representing 28.6 percent of all homes with arnmortgage.</p
The share of distressed properties -rnthose in some stage of the foreclosure process – that were seriously underwaterrnat the end of the second quarter was 34.4 percent, down from 35.1 percent inrnthe first quarter of 2015 and down from 43.6 percent in the second quarter ofrn2014 to the lowest level since RealtyTrac started following the number in thernfirst quarter of 2012. Conversely, the share of foreclosures with positivernequity increased to 42.4 percent in the second quarter, compared to 42.1rnpercent in the first quarter and 34.1 percent a year earlier. </p
“Slowing home price appreciationrnin 2015 has resulted in the share of seriously underwater properties plateauingrnat about 13 percent of all properties with a mortgage,” Blomquist said. “However, the share of homeowners with therndouble-whammy of seriously underwater properties that are also in foreclosurernis continuing to decrease and is now at the lowest level we’ve seen since wernbegan tracking that metric in the first quarter of 2012.”</p
Markets with a population greater thanrn500,000 with the highest percentage of seriously underwater properties in Q2rn2015 were primarily those at the lower end of the spectrum for both home valuesrnand post-crash appreciation. Lakeland, Floridarnled at 28.5 percent, only slightly higher than Cleveland at 28.2 percent.rnOthers with more than a quarter of its properties in negative equity include LasrnVegas, Akron, and Orlando. </p
Markets where the share ofrndistressed properties – those in some stage of foreclosure – thatrnwere seriously underwater exceeded 50 percent in the first quarter ofrn2015 included Las Vegas, Lakeland, Cleveland, Chicago, Tampa, Palm Bay, Florida;rnand Orlando.</p
Not surprisingly RealtyTrac found thatrnthe largest share of seriously underwater homes, 38 percent, have been ownedrnfor seven to 11 years. This puts theirrnpurchase data squarely into the real estate boom years preceding the housingrncollapse.
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