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Homeowners Emerge From Negative Equity Trap

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More homeowners regained equity in their home in the first quarter, reflecting improving home prices, fewer distressed borrowers, and increased principal repayment.

CoreLogic's first quarter Equity Report showed that 268,000 homeowners regained equity in the first quarter of 2016, bringing the total number of mortgaged residential properties with equity to approximately 46.7 million, or 92 percent of all mortgaged properties.

According to the report, home equity increased by $762 billion from the first quarter of 2015 to the first quarter of 2016. Another 800,000 would see equity rise if home prices rose another 5 percent. 

"In just the last four years, equity for homeowners with a mortgage has nearly doubled to $6.9 trillion,” said Frank Nothaft, Chief Economist for CoreLogic. “The rapid increase in home equity reflects the improvement in home prices, dwindling distressed borrowers and increased principal repayment. These are all positive factors that will provide support to both household balance sheets and the overall economy.”

clOn the negative equity front, 4 million properties, or 8 percent of all homes were underwater or upside down in the first quarter, CoreLogic reported. These borrowers owe more on their home than the home is worth, typically because of falling home values, an increase in mortgage debt, or both. This number is down 6.2 percent quarter-over-quarter from 4.3 million homes, or 8.5 percent, in the fourth quarter of 2015, and a decrease of 21.5 percent year over year from 5.1 million homes, or 10.3 percent, compared with first quarter of 2015.

At the end of the first quarter, the national aggregate value of negative equity was $299.5 billion, down $11.8 billion, or 3.8 percent, from $311.3 billion in the fourth quarter of 2015. Year-over-year, the value of negative equity declined overall from $340 billion in the first quarter of 2015, an 11.8 percent decrease in 12 months.

Under-equitied homes, or those with less than 20 percent equity, are among 9.1 million, or 18 percent, of the 50 million homes with a mortgage, CoreLogic said. In addition, 1.1 million, or 2.2 percent, have less than 5 percent equity, also called 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 moving into negative equity if home prices fall," CoreLogic said in the report.

“More than 1 million homeowners have escaped the negative equity trap over the past year. We expect this positive trend to continue over the balance of 2016 and into next year as home prices continue to rise,” said Anand Nallathambi, President and CEO of CoreLogic. “Nationally, the CoreLogic Home Price Index was up 5.5 percent year over year through the first quarter. If home values rise another 5 percent uniformly across the U.S., the number of underwater borrowers will fall by another one million during the next year.”

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