It’s too early to say the housing market is rebounding, but some of the worst factors dragging it down are clearly on the mend.
CoreLogic, which publishes a widely-watched index of housing activity, reported Thursday that 700,000 fewer homes were under water at the end of the first quarter. About 11.4 million homeowners or 23.7 percent of the nation’s total had larger mortgages than their homes’ underlying value compared to 12.1 million or 25.2 percent at the end of 2012.
While the trend is positive, the fact that nearly a quarter of homeowners still are paying overpriced mortgages will continue to drag down economic growth for the foreseeable future. People with overpriced mortgages can’t refinance to take advantage of record-low interest rates engineered by the Federal Reserve Board. That, in turn, continues to direct those homeowners’ limited cash flow into paying off old loans rather than new consumer purchases.
The largest reductions in underwater mortgages came in hard-hit states like Arizona, Nevada and Tennessee. “We are encouraged by the positive trend of increasing housing prices and falling negative equity share,” said Anand Nallathambi, chief executive of CoreLogic. “Although it will still be a slow recovery for U.S. homeowners, we see this improvement as a stabilizing and positive development for the mortgage industry.”
The regional data contained in the latest report would seem to confirm the analysis that the doldrums of the U.S. housing market, driven in part by underwater mortgages, is the major factor holding back a solid economic recovery. The states with the highest underwater rates (Nevada at 61 percent; Florida at 45 percent; Arizona at 43 percent, Georgia at 37 percent and Michigan at 35 percent) tend to have higher-than-average unemployment rates.
The rest of the country has a 15.9 percent rate of mortgages that are underwater and most of those states have unemployment rates at or below the national average, which is 8.2 percent. Nevada’s unemployment rate is 11.6 percent; Florida’s is 8.6 percent; Arizona’s is 8.2 percent, Georgia’s is 8.9 percent and Michigan’s is 8.5 percent, according to the Bureau of Labor Statistics.