While 10.7 million residential homeowners nationwide owe at least 25% or more on their mortgages than their properties are worth, another 8.3 million homeowners are either slightly underwater or slightly above water, putting them on track to have enough equity to sell sometime in the next 15 months — without resorting to a short sale, according to RealtyTrac's U.S. Home Equity & Underwater Report for September.

The 8.3 million include homeowners with a loan to value (LTV) ratio from 90% to 110%, meaning they have between 10% positive equity and 10% negative equity. These homeowners represented 18% of all U.S. homeowners with a mortgage as of the beginning of September.

The 10.7 million residential properties with an LTV ratio of at least 125% represented 23% of U.S. residential properties with a mortgage — down from 11.3 million deeply underwater properties representing 26% of all residential properties with a mortgage in May 2013 and down from 12.5 million deeply underwater properties representing 28% of all residential properties with a mortgage in September 2012.

“Steadily rising home prices are lifting all boats in this housing market and should spill over into more inventory of homes for sale in the coming months,” said Daren Blomquist, vice president at RealtyTrac. “Homeowners who already have ample equity are quickly building on that equity, while the 8.3 million homeowners on the fence with little or no equity are on track to regain enough equity to sell before 2015 if home prices continue to increase at the rate of 1.33% per month that they have since bottoming out in March 2012.”

“In addition, nearly one in four homeowners in foreclosure has at least some equity, giving them a better chance to avoid foreclosure without resorting to a short sale — assuming they realize they have equity and don’t miss the opportunity to leverage that equity,” Blomquist added. “Even homeowners deeply underwater have reason for hope, with about 150,000 each month rising past the 25 percent negative equity milestone — although it will certainly take years rather than months before most of those homeowners have enough equity to sell other than via short sale.”

Other high-level findings from the report:

· More than 126,000 properties in the foreclosure process nationwide had an LTV of 100% or lower in September, representing 24% of all homes in the foreclosure process. States with the highest percentage of foreclosures with equity included Oklahoma (54%), Hawaii (51%), New York (47%) and Texas (46%).

· States with the highest percentage of deeply underwater homes (LTV of 125% or higher) included Nevada (46%), Illinois (40%), Florida (40%) and Michigan (38%).  

· Nationwide 7.4 million homeowners with a mortgage had 50% equity or more, representing 16% of all homeowners with a mortgage. Metro markets with the highest percentage of homeowners with at least 50% equity included Honolulu (36%), San Jose, Calif., (35%), Poughkeepsie, N.Y. (30%), Pittsburgh (29%), San Francisco (29%) and New York (27%).

Local broker perspectives

“Negative equity will always hamper the housing market from making a strong recovery; however, the amount of homeowners with negative equity is shrinking,” said Emmett Laffey, CEO of Laffey Fine Homes International, covering Long Island and the five boroughs of New York City.  “New York metro home prices are increasing at a rate of about 1 percent per quarter and thousands of homeowners will now be in a position to sell and take some equity with them post-closing.”

“The housing market in Oklahoma City and Tulsa continues to improve, with a majority of homeowners having at least some equity in their homes,” added Shel Detrick, CEO of Prudential Detrick/Prudential Alliance Realty, covering the Oklahoma City and Tulsa markets. “If home prices continue to rise, close to one-third of all homeowners in the Oklahoma City metro area will have enough equity to sell their homes in the next year, which is exciting in this inventory-sparse market.”

Added Dan Forsman, president and CEO of Prudential Georgia Realty, “Many homeowners have been predisposed to having negative equity for several years and may not realize that if they put their home on the market at the right price they could sell for a favorable outcome. The market is starving from a lack of inventory, but as the dial of the housing market moves towards positive and home appreciation continues to climb, there will certainly be an increase in the supply of properties.”

Report methodology

The RealtyTrac U.S. Home Equity & Underwater report provides counts of residential properties based on several categories of equity — or loan to value (LTV) — at the state, metro and county level, along with the percentage of total residential properties with a mortgage that each equity category represents. The equity/LTV calculation is derived from a combination of record-level open loan data and record-level estimated property value data, and is also matched against record-level foreclosure data to determine foreclosure status for each equity/LTV category.

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