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Limited inventories hampered further by underwater homeownership

May 4, 2017

Inventory limitations are cropping up in a large and growing number of markets, making it difficult for today's crop of would-be buyers to find homes without bidding wars or otherwise facing rising prices. In some markets, however, there are additional hurdles that stem from still-sizable populations of underwater homeowners.

Through the end of the first quarter, almost 5.5 million homes nationwide were considered seriously underwater, meaning their owners owed at least 25 percent more on their home loans than the property was worth, according to the latest U.S. Home Equity and Underwater Report from ATTOM Data Solutions. That accounts for about 9.7 percent of all homes with an outstanding mortgage balance, but was down from 6.7 million underwater properties seen at the same point last year.

"Almost 5.5 million homes were seriously underwater."

What's the issue?
Problems of underwater homeownership are particularly persistent among two groups: Homeowners in cities hit hardest by the housing market's downturn, and lower-income owners whose homes are worth well below the national median, the report said. In many of the hardest-hit markets in question, underwater properties account for at least 20 percent of all homes in their metro areas.

"While negative equity continued to trend steadily downward in the first quarter, it remains stubbornly high in often-overlooked pockets of the housing market," said Daren Blomquist, senior vice president at ATTOM Data Solutions. "For example, we continue to see one in five properties seriously underwater in several Rust Belt cities along with Las Vegas and central Florida. Additionally, close to one-third of homes valued below $100,000 are still seriously underwater."

It's not just big markets
But even in smaller cities or counties, where underwater homeownership isn't as persistent and sales numbers aren't as significant, demand remains high, according to Idaho Falls, Idaho, television station KPVI. Even in Idaho Falls, owners who put their homes up for sale receive considerable interest from would-be buyers, and properties are coming off the market quickly.

"Purchase applications rose 4%."

Moreover, this is a trend that's likely to continue for some time to come. Despite a recent uptick in mortgage rates once again, shoppers were not deterred from filing home loan applications with lenders across the country, according to the latest Weekly Mortgage Applications Survey from the Mortgage Bankers Association. In the week ending April 28, the number of purchase applications filed rose 4 percent on a weekly basis, and 5 percent year-over-year.

Indeed, rates on 30-year-fixed-rate mortgages - most often used in purchases - ticked up to 4.23 percent last week, an increase from 4.2 percent the week before, the report said.

All this highlights just how important it is for prospective would-be buyers to get into the market as soon as they can. Home prices and mortgage rates alike are expected to continue rising for at least some time to come, and those who delay their decision to get into the market could end up paying tens of thousands of dollars more over the lives of their loans.




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