This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Rising Prices Free Nearly 800,000 Borrowers in Third Quarter

Stocks in this article: ^DJI ^GSPC

NEW YORK (TheStreet) -- Nearly 800,000 properties were freed from "negative equity" in the third quarter, according to the latest report from CoreLogic.

As many as 6.4 million homes, or 13 percent of all residential properties with a mortgage, were still in negative equity at the end of the third quarter of 2013, down from 7.2 million homes, or 14.7 percent of all residential properties with a mortgage, at the end of the second quarter of 2013.

Negative equity means borrowers owe more than the home is worth. Borrowers become "underwater" on their mortgage when the value of their homes decline or their mortgage debt increases.

The housing bust plunged millions of homeowners underwater. These borrowers are trapped in their homes because unlike other struggling borrowers, they can't sell their homes and repay their mortgage. This also limits their ability to relocate to another city for work. They also normally have difficulty refinancing their mortgage.

The longer borrowers are underwater the higher the probability they will default, though it is worth noting that the majority of underwater borrowers remain current on their mortgage several years after the bust.

The inability of underwater borrowers to sell is also one reason why the supply of homes available for sale has been so low.

Still, the shortage of homes has been sending prices higher, which in turn frees up more underwater borrowers. According to Anand Nallathambi, CEO of CoreLogic, 3 million property owners have regained equity in their homes since the first quarter of 2013.

As more borrowers regain equity in their homes, they will finally be able to list their properties in the market, expanding the supply of homes.

But it is a long road ahead for many borrowers. CoreLogic estimates that 20.4% of all properties with a mortgage are "under-equitied", meaning they have less than 20% equity. These borrowers also have difficulty trading up to a bigger home because they lack sufficient equity for a downpayment for the next loan.

About 1.5 million property owners have less than 5% equity, which means they are in danger of going underwater if prices fall.

Nevada had the highest percentage of mortgaged properties in negative equity at 32.2 %, followed by Florida (28.8%), Arizona (22.5 %), Ohio (18 %) and Georgia (17.8 %).

A separate estimate from Zillow puts the number of underwater homeowners at 10.8 million. Still, even Zillow's data shows that the negative equity rate is falling rapidly.


-- Written by Shanthi Bharatwaj in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,356.87 +288.00 1.69%
S&P 500 2,012.89 +40.15 2.04%
NASDAQ 4,644.3120 +96.4780 2.12%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs