A new Fannie Mae report suggests many previously underwater borrowers’ equity is rising back to levels more in line with their mortgages, but notes that the increase so far is driven more by investors than financed homeowner purchases.
According to the report by Fannie’s director of economics, Orawin Velz, the first annual rise in home prices in six years “has contributed to a positive feedback loop for the housing market by helping many underwater homeowners—those whose mortgages exceed the value of their homes—regain their positive equity positions.”
Velz noted that Federal Reserve flow of funds data that show household net worth rose to a five-year high “in part because of rising home equity.”
She said, “Rising home prices should help some homeowners who have involuntarily remained on the sidelines to put their homes on the market, as more than 1.7 million properties returned to positive equity by the end of 2012.”
However, she also noted that “investor demand has commanded a strong presence in many markets, and organic demand, as gauged by purchase mortgage applications, has not picked up substantially.
“In fact, the principal driver of robust home price gains over the past year has been tight supply, as seen by various indicators, including listings of existing homes and the number of new homes available for sale that have trended down to depressed levels.”
Also the recovery has not reached certain states where underwater loans remain concentrated, Velz said in the report.
“Underwater properties remain concentrated in a few states, with those in the worst five states accounting for nearly a third of total underwater properties,” she said, citing CoreLogic data.
However, CoreLogic data also show “a cumulative home price gain of 20% over the next several years should help most mortgages regain positive equity, except for the most severely underwater,” Velz said in the report.
“The speed of the transition of these underwater loans to positive equity positions is expected to vary regionally,” she said.
