The more than 20 percent of U.S. homeowners stuck with "underwater" mortgages may be in a rough spot -- but, believe it or not, that may be giving a boost to the housing market.
Though negative equity is forcing millions to stay put in homes that are worth less than their mortgages, it means fewer properties are going up for sale -- and that's driving up the prices of homes that are already on the market, according to a recent report by the analytics firm CoreLogic. The price increases could help spark a recovery by luring in more homebuyers keen on purchasing assets likely to appreciate in value, experts say.
"One of the reasons that inventory has fallen is because negative equity means that people aren't putting their homes on the market because they're underwater," said Jed Kolko, chief economist of listing service Trulia. "Buyers are chasing a smaller number of homes and, therefore, are more likely to bid up prices."
Of course, that's not much consolation for Christy Mannering (pictured above with her family).
She's been dying to move from her home in Bear, Del., since November 2007, when it was robbed.
"I was immediately like, 'I want to get out of this neighborhood,' " said Mannering, who is a Web developer at the University of Delaware and also runs the blog Scrink.com.
But nearly five years later -- and after the housing bust demolished national home prices -- she's still there, stuck in a mortgage that now costs $25,000 more than her home, and forced to continue living in a neighborhood that she considers dangerous.
Still, Mannering's quandary, bizarrely, may spell hope for the real estate market in the short term.
"Paradoxically, as the flow of REOs [bank-owned properties] has slowed over the last 18 months, negative equity has become a positive force in real estate markets by restricting supply in the face of increasing demand," wrote CoreLogic's Sam Khater in the firm's June MarketPulse report.
There's also another market trend at play: Data show that fewer bank-owned homes are flowing onto the market, as lenders proceed cautiously with foreclosures in the wake of the "robo-signing" settlement and ramp up efforts to resolve distressed mortgages through loan modifications and short sales.
Both market influences have acted together to push down for-sale home supply to its lowest level since the housing bust, the CoreLogic report said.
That's played a role in fueling a recent price recovery, experts say. CoreLogic's Home Price Index, which was in line with some other indices, showed that home prices rose consecutively in March and April, something that "will rebuild confidence in many local markets," Kolko said.
However, Kolko warned that negative equity is by no means a boon to the market.
The difference between a market recovery nursed by price increases that are artificially propped up by a large number of underwater homes versus one that kicks into gear only after absorbing a pent-up supply of homes (the homes currently trapped by underwater mortgages) is "like whether you take a Band-Aid off quickly or slowly," he said.
Negative equity is "not permanently reducing inventory," he said. When homeowners are finally able to sell their properties for more, a larger number of them might flow onto the market, which would depress home values.
Mannering couldn't care less about the effect of her family's underwater mortgage on home prices -- she just wants to come up for air. She has pursued a loan modification tirelessly, in an effort to give her family some financial breathing room.
"Currently, we are with Bank of America," she said. "At first, we spoke to them, and they told us to call back in 60 to 90 days because they were too busy with other customers. We also spoke to someone there who told us to start missing payments and look into modifying our home-to-loan value ratio -- but, again, that ruins your credit."
Her fingers crossed, Mannering is on the hunt for lenders who may allow her to refinance under the Home Affordable Refinance Program, which allows some homeowners who are current on their mortgages to refinance Fannie Mae- or Freddie Mac-guaranteed loans to lower rates. But she and her husband must grapple with whether lowering their mortgage rate by a percentage point or two is worth the $5,000 in closing costs.
"Our situation may be helping other people in the market," she said. "But it's not helping us, and I have a funny feeling there is a high percentage of people in the very same sinking boat as we are in."
Foreclosure rate: 1 in 347 homes
Number of homes: 942,312 (24th most)
Foreclosures (April 2012): 2,717 (16th most) Homeprice decline from peak: -54.2% (sixth largest decline)
Median home prices in the Orlando area fell by 54.2 percent from their peak in the second quarter of 2006 through the end of 2011. Of the 50 most populous metro regions in the U.S., the Orlando-Kissimmee area has the tenth highest foreclosure rate in April, of one in every 347 homes. Orlando had 2,717 new homes in foreclosure this past April, up 12.9 percent from the 2,406 in April 2011. The forecast for the future is similarly bleak. Fiserv projects Orlando homes to continue to lose value between the fourth quarter of this year and the fourth quarter of 2013, predicting a 1 percent decline in prices over that time period.
Foreclosure rate: 1 in 321 homes
Number of homes: 3,797,247 (third most)
Foreclosures: (April 2012): 11,840 (The most)
Home price decline from peak: -36.8% (twelfth largest decline)
From their peak in early 2007, home prices in Chicago fell 36.8 percent through the end of 2011. In April, the Chicago-Naperville-Joliet metro area had the largest number of new homes in foreclosure among the 50 largest MSAs, at 11,840. This represented an increase of 25.5 percent from April 2011 when 9,433 homes entered foreclosure. However, the number of foreclosures represents a 7.63 percent decline from March, when the Chicago area also led all metropolitan areas with 12,818 foreclosures. Another positive sign for Chicagoans: Home prices are projected to rise 6.3 percent annually through 2016, according to Fiserv.
Foreclosure rate: 1 in 315 homes
Number of homes: 1,353,158 (17th most)
Foreclosures: (April 2012): 4,295 (eighth most)
Home price decline from peak: -48% (eighth largest decline)
Residents of the Tampa, Fla., metro area watched the median home price in the region fall to $137,000 in the fourth quarter of 2011 -- a 48 percent drop from its peak. The region recorded 4,295 foreclosures in April 2012. To make matters worse, that number is up from the April 2011 figure. Then, only 2,701 homes in the area were new to foreclosure, meaning that foreclosures increased by 59 percent in the past year. One in every 315 homes in this MSA had a foreclosure start this past April.
Foreclosure rate: 1 in 313 homes
Number of homes: 1,798,501 (12th most)
Foreclosures: (April 2012): 5,755 (sixth most)
Home price decline from peak: -56% (third largest decline)
Home prices in the Phoenix region -- the country's twelfth-largest metropolitan area by housing units -- declined by 56 percent from their 2006 peaks through the end of 2011. Although this accounted for the third-largest decline in home prices among all metropolitan areas, the Phoenix region posted a 22.64 percent decline in foreclosures from March, as the number of new foreclosed homes fell from 7,439 to 5,755. Likewise, in the last year, the number of foreclosure starts in the area fell by 44.44 percent, from 10,358 in April 2011 to 5,755 this past April.
Foreclosure rate: 1 in 309 homes
Number of homes: 410,031 (the least)
Foreclosures (April 2012): 1,326 (23rd least)
Home price decline from peak: -19.3% (25th largest decline)
Home prices in the Salt Lake City area declined by roughly 20 percent from their peak in 2007 to the fourth quarter in 2011, which is a modest decline compared to other regions on this list. Nevertheless, foreclosure rates were higher than all but five of the largest metros in the country. Compared to the 1,406 foreclosures in April of 2011, April 2012's foreclosures declined by 5.7 percent. This metro area is one of the few on the list that analysts are bullish about; home prices are projected to increase by 9.5 percent from this year's fourth quarter to the fourth quarter in 2013.
Foreclosure rate: 1 in 298 homes
Number of homes: 2,165,495 (ninth most)
Foreclosures: (April 2012): 7,271 (fourth most)
Home price decline from peak: -35% (14th largest decline)
As of the fourth quarter of 2011, home values in Atlanta fell by 35 percent from their peak. The Atlanta area has the ninth most housing units of any region on the list, at 2,165,495, and the median price of these homes was just $110,000 in the fourth quarter of 2011. To make matters worse, the area's April 2012 foreclosure figure was a staggering 7,271 homes -- the fourth most among the nation's largest cities. Things may be on the upswing though -- since the number of homes in foreclosure fell by 11 percent from the prior month.
Foreclosure rate: 1 in 277 homes
Number of homes: 871,793 (23rd fewest)
Foreclosures: (April, 2012): 3,147 (twelfth most)
Home price decline from peak: 54.7 percent (fifth largest)
The first California metropolitan region on this list, the Sacramento-Arden-Arcade-Roseville area had one in 277 homes in foreclosure in April. With home prices down 54.7 percent from their high at the end of 2005, the Sacramento area registered the fifth-largest decline in home prices. The area had the twelfth-most foreclosures in the U.S. However, foreclosures are down by 39.01 percent from last year, when April 2011 had 5,160 homes in foreclosure. Additionally, the number of foreclosures also decreased by 26.7 percent from the previous month, from 4,294 to 3,147. Fiserv expects home prices in the area to rise 6.3 percent annually through the fourth quarter of 2016.
Foreclosure rate: 1 in 273 homes
Number of homes: 2,464,417 (fifth most)
Foreclosures: (April 2012): 9,031 (third most)
Home price decline from peak: 54.2% (seventh largest decline)
The Miami metro region topped all Florida regions in the number of new foreclosures. It also ranks third in new foreclosure rates among the 50 largest metros with 9,031 foreclosures in April, 2012 -- a rate of one in 273. While foreclosures in the area decreased between March, 2012, and April, 2012, to the tune of 9.2 percent, the future appears gloomy. Prices in this region are forecast to fall another 3.8 percent between the fourth quarters of 2012 and 2013.
Foreclosure rate: 1 in 249 homes
Number of homes: 840,343 (22nd fewest)
Foreclosures: (April 2012): 3,378 (tenth most)
Home price decline from peak: 61.8% (the largest decline)
Home prices in Las Vegas, the poster child of the housing crisis, plunged by 61.8 percent from their peak in early 2006 through 2011 -- the greatest decline of any of the nation's 50 largest metros. Although new foreclosures in the Las Vegas-Paradise region declined by 66.1 percent to 3,378 over the past year, the number of foreclosures in April represents a slight increase over March, when 3,301 new homes were in foreclosure. Making matters worse, prices are expected to fall by another 3.3 percent between the fourth quarter of 2012 and the fourth quarter 2013, according to Fiserv.
Foreclosure rate: 1 in 213 homes
Number of homes:1,500,344 (14th most)
Foreclosures: (April 2012): 7,049 (fifth most)
Home price decline from peak: -56.6% (second largest decline)
As of the fourth quarter of 2011, prices in the Riverside metro area fell by 56.6 percent from their peak, the second largest drop among top-50 metros. In addition, this region is first in terms of now foreclosure rate, at one in 213. While the number of homes (1.5 million) ranks 14th of the 50 largest regions, the area's new foreclosure count for April, 2012, reached 7,049 -- fifth highest overall. It appears, however, that, the situation is improving; between March 2012 and April 2012, foreclosures dropped 10.8 percent.