Housing market turning a corner? Signs of hope for homeowners.
Rising home values and declining foreclosure rates indicate a slow but steady recovery for the US housing market. Obstacles remain, however, including negative equity due to 'underwater' mortgages.
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Sometimes, negative equity results in other outcomes. For Antionette Patricio and her family, the burden of paying off a loan that far outweighs her home value finally reached a breaking point. With nearly $300,000 in debt and two teenage daughters, she and her husband are trying to arrange a "short sale" in which they get out of the home without paying off the balance. The house might change hands for about $159,000, says Ms. Patricio, who works at a Zoots dry cleaners in Warwick, R.I. The lender would take a loss.Skip to next paragraph
Patricio says she expects to become a renter to avoid the market swings. "If something goes wrong, it's not my problem," she explains.
Yet despite the head winds of underwater loans and high unemployment, the nation's housing situation appears to have turned a corner for the better.
The positive national trends include:
• Home prices. House values are rising or stabilizing – and this is occurring without the kind of special support that home-buyer tax credits offered back in 2010. A widely watched price index from the Federal Housing Finance Agency posted a gain of 3 percent in the second quarter, compared with a year earlier. The Standard & Poor's Case-Shiller indexes have recently improved to show month-over-month gains in all 20 major cities tracked.
The pattern also shows up on maps from Zillow.com, a company that follows local real estate markets. A year ago, the typical metro area was largely red, indicating still-falling prices. Now, the common color scheme includes prominent patches of green ZIP Codes, with positive year-over-year price changes.
• Delinquency and foreclosure. Loans that are at least one payment past due stood at 7.58 percent of residential mortgages at the end of the second quarter, nearly a percentage point lower than a year ago. In addition, some 4.27 percent of loans were in some stage of foreclosure, a historically high number but also down a bit from a year before, the Mortgage Bankers Association reports. Aiding the decline in distressed loans: Negative equity has also begun to decline, thanks to the turn in home prices.
• Demographics. The Great Recession slowed the rate at which young people move out of parental nests and form households of their own. But that creates pent-up demand for housing. "At 84.7 million strong in 2010, the echo-boom generation is already larger than the baby-boom generation at similar ages," notes a report from Harvard University's Joint Center for Housing Studies, referring to the generation whose oldest members are now entering their mid-20s. The report adds that this generation "is likely to grow even larger as new immigrants arrive."
• Affordability. Although much depends on people's individual job security, the economics of buying a home are favorable in much of the country, economists say. Home prices have fallen substantially, to an average now about 20 percent above their historic trend line, relative to overall inflation, according to data compiled by Robert Shiller of Yale University. Together with low interest rates, that has brought home affordability to a four-decade high since the recession, a National Association of Realtors index shows.
"You probably will never see a better time to buy than right now," says Mr. Newport, in Lexington, Mass.