Very few homeowners were underwater in 2013 – Is this a positive sign?

imagesAccording to a report from RealtyTrac, an increasingly large number of mortgage borrowers are keeping their heads above water. In fact, the company had reported that 9.3 million properties, which come to around 19% of all the homes with mortgage loans, were deeply underwater in the month of December and this meant that borrowers owed at least 25% more on their mortgage loans than what their homes were worth. This figure has been fortunately down from 26% of all homes with mortgage loans or 10.9 million properties, as reported by RealtyTrac. After the recovery of the home prices, the fortunes of the homeowners have certainly have turned around. The average US home price jumped to nearly 15% year-after-year throughout October. This has added thousands and hundreds of dollars to the average value of a home.

With an increase in home equity, it will certainly man fewer foreclosures as negative equity has always been the biggest reason behind the large number of foreclosures in the nation but other events like prolonged illness or job loss has also been some other reasons behind a foreclosure. The more underwater a homeowner will be on his mortgage loan, the more likely will he be to conclude that the best way out is to stop making further payments towards the mortgage loan and let the home be seized by a bank. This snatches away their motivation to save their dollars on their properties. They are also left with one less financial asset if they had to hit financial odd situations. Although borrowers typically can do a short sale during such situations but being underwater lessens the chances of selling off the home.

Vice President of RealtyTrac, Daren Blomquist, said that the falling home prices put millions of homeowners run the risk of losing their homes to a foreclosure during the housing boom. But the outlook has certainly been more positive during the price rise. In fact, the percentage of equity-rich homeowners is almost nearing a tipping point which will certainly result in a larger inventory of homes that were listed for sale. This will all-over give the economy a nice shot in the arm in 2014. Nevertheless, there are millions of homeowners who are still living under the threat of losing their homes to an impending foreclosure as they’ve drowned deep into the hole of job loss, and this has pushed them towards the financial limit.

Among the different states, Nevada topped the list of states with the highest number of homeowners who are deeply underwater, at 40%. Nevada was immediately followed by Florida (34%), Illinois (32%), Michigan (31%), Missouri (28%) and Ohio (28%). These were the states that were the hardest hit during the recession and the housing crisis. The states with the highest percentage of homeowners, who at least had 50% equity in their mortgages, included Hawaii (36%), New York (33%) and California (26%). Montana, Maine and Washington DC came in with 24%. Hence, this is being seen as a positive sign for the US housing market and for the prospective borrowers too.

Jimmy Simond is a founder of Personalfinancetricks.com, he share his immense knowledge of finance in this blog.