In a big surprise for the housing market, more American homeowners emerged from deeply underwater mortgages at the end of the year—about a million more than were even expected.
During the course of 2013, 1.6 million homeowners moved away from being deeply underwater, which is when a home is worth at least 25 percent less than the homeowner’s mortgage, according to researchers at real estate information company RealtyTrac.
But what’s really surprising, according to the company’s vice president Daren Blomquist, is that 1.4 million happened in just the past three months. Before October, only 200,000 homeowners had left the depths of severe negative equity.
The unexpected gains of the last three months drastically change the picture of severely underwater homeowners. In January 2013, 26 percent or 10.7 million homeowners were deeply underwater, yet only 19 percent or 9.3 million are today.
“That’s faster than the pace we’ve seen in previous years and previous quarters,” Blomquist said. “We didn’t expect it.”
What’s maybe more shocking: Home price appreciation, which drives equity upward, slowed at the end of the year.
“I think what we saw in the fourth quarter is the combined increase in home price appreciation seen over the last 18 to 20 months reaching a tipping point where it did allow a lot of these homeowners to move out of the severely underwater category,” Blomquist said.
While these homeowners are still underwater, they’re moving toward equity and away from the danger zone that pushed so many homeowners into foreclosure during the crisis. As they get closer to positive equity their options broaden and they have a chance to sell when faced with delinquency, instead of going through a short sale or foreclosure.
Meanwhile, on the positive side of equity, the number of equity-rich homeowners, those who have at least 50 percent equity in their home, grew in the last three months as well. In September, 7.4 million homeowners were considered equity-rich, but now 9.1 million are.
That means that more homeowners could jump off the fence and sell.
And that should mean larger inventories for sale this year and a shot in the arm for the overall economy in 2014, Blomquist said.