Underwater mortgages decrease in 2015

Last year saw big improvements in the housing market. According to a report from RealtyTrac, the number of underwater mortgages continued to decrease, giving many Americans reason to celebrate.

Underwater mortgages are ones where the amount owed on a mortgage loan is higher than the fair market value of the property. In the third quarter of 2015, fewer than 7 million residential properties were underwater, or had a value of 25 percent less than the amount the homeowner owed. This represents about 12.7 percent of all properties with a mortgage, 0.6 of a percentage point fewer than the previous quarter. Compared to three years earlier, when RealtyTrac first began tracking the number of underwater mortgages, this is a significant improvement. The highest the number got was during the second quarter of 2012, when 28.6 percent of properties with a mortgage were underwater.

“Fewer than 7 million residential properties were underwater in 2015’s third quarter.”

Aside from two small upticks in 2015, the number has been consistently falling.

“After a lull [in late 2014] and early [2015], home sales volume and average sales prices picked up dramatically again in the second and third quarters of [2015], resulting in a substantial drop in seriously underwater homeowners,” said Daren Blomquist, RealtyTrac’s vice president.

Housing market continues to get better
Heading into the final quarter of 2015, The New York Times noted the housing market still had room for improvement before it gets back to what is considered a normal rate of underwater homes: 2 percent. However, this progress shows significant movement in the right direction.
Some metro areas are doing better than others, , data from Zillow shows. Some areas boast rates of underwater mortgages considerably lower than the national average, such as:

  • San Jose, California mortgages: 3 percent underwater
  • San Francisco mortgages: 5 percent
  • Houston, Dallas and Denver mortgages: 6 percent
  • Austin, Texas, and Portland, Oregon mortgages: 7 percent

Meanwhile, other areas were not doing as well, such as Las Vegas, where one-quarter of mortgages remained underwater.

Taking advantage of home refinancing options
In addition to fewer underwater mortgages, the housing market also saw decreased numbers of equity-rich homes. In the third quarter of 2015, 19.2 percent of properties with a mortgage were equity rich, which means they owe 50 percent or less of the value of the home. This is down from the second quarter’s 19.6 percent and even further away from 2014’s third quarter, which saw 20.1 percent.

Home improvements can be funded by refinancing an equity-rich home.Refinancing an equity-rich home allows homeowners to make improvements to their existing home or invest the money elsewhere.

“The number and share of equity rich homeowners also dropped dramatically between the second and third quarters continuing a trend from the previous two quarters evidence that more homeowners in this category are leveraging their equity through a refinance, move-up sale or by completely cashing out of the housing market,” Blomquist said.

The homeowners who are refinancing or cashing out their home equity are taking advantage of the value their home has accumulated over the years. With today’s historically low mortgage rates, it might be a smart move for homeowners looking to make an investment elsewhere. Tapping into your home equity is a great way to secure the funds needed to buy a second home or begin a business.

Homes that are equity rich typically have been owned for 20 years or more and are worth at least $750,000, RealtyTrac found. San Jose, San Francisco, Los Angeles and New York were some of the metro areas with the most equity-rich homes. Other markets are seeing dramatic improvements, such as Seattle and Denver.

“Colorado’s escalating market may allow those homeowners facing foreclosure to have their cake and eat it too. Many property owners underwater today have viable options that were unheard of during the last downturn,” Al Detmer, a broker associate at Colorado-based RE/MAX Alliance, explained. “Increased property values and low interest rates may allow an owner to both recoup their losses while paying down other debts with cash outs or by refinancing.”

For more information about your refinancing options, talk to the experts at Lenox/WesLend Financial or call 844-225-3669. As heard on the radio, it’s the biggest no-brainer in the history of mankind.

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