The housing crisis saw many homeowners go underwater with their mortgages, where their outstanding mortgage balance exceeds the actual value of the home. As the market continues to improve, though, it would appear that these days are far behind us. Just last quarter, more than three-quarters of a million US homes regained equity, bringing the percentage of homes with negative equity down to single digits.
Currently, there are approximately 4.4 million properties still underwater, representing about 8.7% of the country’s homes. The national aggregate value of this negative equity was down to $309.5 billion, representing a decrease of 11.6% from the $350 billion a year ago. The total borrower equity rose by $691 billion.
All the same, there is still a fair number of homes that are under-equitied. These homes, which have less than 20% equity, generally have a more difficult time securing a refinancing into a more favorable mortgage rate. They can also easily fall underwater when home prices dip. At present, there are about 9 million under-equitied homes, representing about 17.8% of total homes.
Looking back at August, we can see that sales of existing homes dipped 4.8% from July’s 5.58 million units to a seasonally adjusted annual rate of about 5.31 million units, despite low prices and reasonable mortgage rates. This decline is cutting off three consecutive months of increases.
However, the news is not all bad. Though August was down from July, it represents a year-over-year increase of 6.2%. This is the eleventh consecutive month wherein we have seen year-over-year improvement of existing home sales.
Meanwhile, prices continue to go up. The median price for existing homes was $228,700 in August, which comes to an increase of 4.7% over the $218,400 we saw in August of 2014. This is the 42nd consecutive year-over-year gain in existing home prices.
Though inventory continues to be a big problem, August showed an increase of 1.3% to 2.29 million homes. This comes out to a 5.2 month supply, compared to the 4.9 month supply in July. However, this inventory is 1.7% lower than what was experienced in August of 2014.
Fannie Mae’s economists have come out with their economic and strategic summary for May. The bad news is that their outlook for the economic growth in 2015 is weakening. Despite this, their assessment of the housing market is getting stronger.
Their reduced expectations for the economy are based on the disappointing growth of the GDP in the first quarter, which came in at only 0.2%. With this in mind, their expectations for the year dropped by 0.5% to a total of 2.3%.
As far as housing goes, Chief Economist Doug Duncan is calling the market “mixed”. In March, existing home sales reached their highest level in two years. Meanwhile, pending home sales and mortgage loan applications were both strong, and foreclosure rates have been improving. However, the first quarter represented a decline from the numbers seen in the fourth quarter of 2014.
Risk is flooding back into the markets, most notably in the form of the changes in the European bond markets. After a year and a half of record lows, it would seem that things have finally turned around. Though it is still too early to know whether or not this is to be a major, long-term reversal, investors are playing it safe by dumping their bonds.
Since the European markets are connected fairly closely with US markets, this selling trend is having an effect on American mortgage rates. This is providing for a high-risk environment, and the average borrower would do well to lock in to current rates before they can jump any higher.