The large number of underwater mortgages could actually be
boosting home prices in some markets, according to a new CoreLogic
The reason? Homeowners who otherwise would be looking to move up
are unable to sell their current homes because they're trapped by
negative equity. The result is fewer homes coming onto the market
and a dwindling inventory of properties for sale.
Homeowners unable to sell
The national inventory of homes for sale fell to a 6.5 month
supply in April, according to CoreLogic, the lowest level in five
years and down from a 9-month supply in June 2011. While a
dwindling inventory typically reflects increased sales, the current
drop is due more to the fact that many homeowners simply are not in
a position to sell.
"Negative equity is typically a demand-side obstacle to sales
and refinances, but currently also is restricting the supply of
homes for sale," wrote Sam Khatar, CoreLogic senior economist, in
the company's quarter market report, released today. He continued
"(It) restricts the ability of homeowners to list their homes for
sale as the demand side of the market improves."
Negative equity corresponds to lower inventories
Khatar noted that among the nation's 50 largest housing markets,
those with more than 50 percent negative equity currently average a
4.7 month supply of homes for sale, compared to 8.3 months for
areas with fewer than 10 percent of homes in negative equity.
The pricing impact has been most pronounced on lower priced
homes, according to Khatar, because supplies are tighter due to
greater negative equity. Prices of lower priced homes are up 4.5
percent over the past year, he said, while more expensive homes
have risen by only 0.6 percent.
For the housing market as a whole, prices of nondistressed homes
showed an annual increase of 1.9 percent from April 2011 to April
2012, according toCoreLogic.
Demand constrained for higher-priced homes
Many of those who normally would be buying those higher-priced
homes are unable to do so because they cannot sell their present
home, while lower-priced homes tend to be sought by first-time
buyers who don't have that restriction.
"Historically, current homeowners trading up represent the
biggest section of the purchase market," wrote Anand Nallathambi,
CoreLogic CEO. "But with more than 20 percent of homeowners
underwater, another 25 percent of all homeowners possessing less
than 20 percent equity in their homes, and tightened underwriting
requirements, this potential pool of buyers has been effectively
In an encouraging sign for the housing market, the CoreLogic
report notes that construction of single-family homes has been
increasing, up 2.3 percent in April and 25 percent over the
preceding six months. The report notes this is particularly welcome
news due to the multiplier effect new home construction has on the
economy as a whole.
First published on MortgageLoan.com at: