About 10.7 million residential homeowners – roughly 23% of all homeowners nationwide – owed 25% or more on their mortgages than their properties are worth, as of Sept. 1, according to RealtyTrac's U.S. Home Equity & Underwater Report.
In other words, these homeowners have a loan-to-value (LTV) ratio of at least 125%.
However, if home prices continue to rise at the current rate, about another 8.3 million who are either slightly underwater or slightly above water (i.e., with an LTV ratio of 90% to 110%) will have enough equity to sell sometime in the next 15 months – without resorting to a short sale – the report finds.
These homeowners represented about 18% of all U.S. homeowners with a mortgage, as of the beginning of September.
‘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,’ says Daren Blomquist, vice president at RealtyTrac, in a release. ‘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 percent per month that they have since bottoming out in March 2012.’
The report serves as an indicator of how far things have come – and how far there is to go – with regard to the housing recovery. As of May, there were 11.3 million deeply underwater properties (above 125% LTV), representing 26% of all residential properties with a mortgage, down from 12.5 million deeply underwater properties, representing 28% of all residential properties with a mortgage, as of September 2012.
Blomquist notes that underwater homeowners contemplating short sale or foreclosure should be aware of how much property values have increased in their respective markets in recent months, as they might have more equity in their homes than they realize.
‘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 says.
On the other hand, it might take several years for deeply underwater homeowners to regain enough equity to sell, he says.
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