Homeowners regain equity as home values trend upward

92.9 percent of all mortgaged properties nationwide have positive equity

Over half a million U.S. homeowners regained equity in their homes in the second quarter, increasing the percentage of homes with positive equity to 92.9 percent of all mortgaged properties, according to global property information and analytics provider CoreLogic.

Nationwide home equity grew year over year by $646 billion, an increase of 9.9 percent in the second quarter of 2016 compared to the same period in 2015.

Negative equity, which applies to borrowers who owe more on their mortgages than their homes are worth, can occur due to a decline in home value, an increase in mortgage debt or a combination of both. During the housing market crash, a substantial amount of homes were referred to as “underwater” or “upside down” mortgages.

However, with time, the amount of negative equity homes has been decreasing. In the second quarter, the total number of mortgage residential properties with negative equity stood at 3.6 million, or 7.1 percent of all homes with a mortgage. It’s also a 13.2 percent decrease quarter over quarter from 4.2 million homes, or 8.2 percent, in the first quarter of 2016, and a decrease of 19 percent year over year from 4.5 million homes, or 8.9 percent, compared to the second quarter of 2015.

In Manchester-Nashua, 6,750, or 8.9 percent, of all residential properties with a mortgage were in negative equity as of the second quarter of 2016, compared with 8,386, or 11.0 percent, in the first quarter of the year and 8,632, or 11.7 percent, in the second quarter of 2015. An additional 2,185 properties, or 2.9 percent, were in near-negative equity for the second quarter, compared with 2,604, or 3.4 percent, in the first quarter of 2016 and 2,622, or 3.6 percent, in the second quarter of 2015.

Nationwide, the national aggregate value of negative equity was $284 billion at the end of the second quarter, decreasing approximately $20.4 billion, or 6.7 percent, from $305 billion in the first quarter of 2016. On a year-over-year basis, the value of negative equity declined overall from $314 billion in the second quarter of 2015, representing a decrease of 9.5 percent in 12 months.

Of the more than 50 million homes with a mortgage, approximately 8.6 million, or 17 percent, have less than 20 percent equity (referred to as under-equitied) and approximately 965,000, or 1.9 percent, have less than 5 percent equity (referred to as near-negative equity). Borrowers who are under-equitied may have a difficult time refinancing their existing homes or obtaining new financing to sell and buy another home due to underwriting constraints. Borrowers with near-negative equity are considered at risk of shifting into negative equity if home prices fall.

“Home-value gains have played a large part in restoring home equity,” said Dr. Frank Nothaft, chief economist for CoreLogic. “The CoreLogic Home Price Index for the U.S. recorded 5.2 percent growth in the year through June, an important reason that the number of owners with negative equity fell by 850,000 in the second quarter from a year earlier.”

“We see home prices rising another 5 percent in the coming year based on the latest projected national CoreLogic Home Price Index,” said Anand Nallathambi, president and CEO of CoreLogic. “Assuming this growth is uniform across the U.S., that should release an additional 700,000 homeowners from the scourge of negative equity.”