(Source: Paul Gores Milwaukee Journal Sentinel (MCT) — The number of residential properties with mortgages that are “under water” – borrowers owing more on their homes than they’re worth – is dropping in the Milwaukee area and nationally, another sign the housing market is slowly recovering.
In the four-county metro Milwaukee area, 20.9% of homes were under water on their mortgages in the first quarter of this year, according to a report released Thursday by the Santa Ana, Calif.-based business data and analysis firm CoreLogic.
That’s down from 22.7% in the fourth quarter of 2011 in Milwaukee, Waukesha, Washington and Ozaukee counties.
Nationally, the percentage of homes under water was 23.7%, a decrease from 25.2% in the fourth quarter of 2011.
Mark Fleming, CoreLogic’s chief economist, said the improvement reflects rebounding home prices, a healthier balance of real estate supply and demand and a slowing number of distressed sales.
“This is a meaningful improvement that is driven by quickly improving outlooks in some of the hardest hit markets,” Fleming said. “While the overall stagnating economic recovery will likely slow housing market recovery in the second half of this year, reducing the number of under water households is an important step toward reducing future mortgage default risk.”
Nevada had the highest negative equity percentage with 61% of all mortgaged properties under water, followed by Florida at 45%, Arizona at 43%, Georgia at 37% and Michigan at 35%.
Those five states combined have an average negative equity share of 44.5%, while the remaining states have a combined average negative equity share of 15.9%, CoreLogic said. Wisconsin’s share of homes under water on their mortgages was 16.6%.
Bankruptcy attorney David Leibowitz, founder and managing member of LakeLaw in Milwaukee and Kenosha, said he believes the national residential real estate market bottomed about three months ago, and there is evidence it – and the economy – are on the mend.
“Demand is up, and even though unemployment and the economy are not improving as fast as people would like, they’ve certainly improved,” Leibowitz said.
For people who have a bigger mortgage than their home is worth, there shouldn’t be trouble with their lender if they have a long-term mortgage, don’t plan to move and are staying current on their monthly payments, experts said.
“Certainly the fact that our percentage of under water mortgages is improving is a good thing and a positive sign that the housing industry generally is recovering in this state,” said Rose Oswald Poels, chief executive of the Wisconsin Bankers Association. Oswald Poels said that while homeowners with 15- or 30-year fixed-rate mortgages should not have problems if they keep making their payments on time, under water adjustable rate mortgages are different. The readjustment of the variable rate will trigger underwriting that looks at whether the home’s value is adequate collateral for the mortgage.
“My advice for anyone who is under water who also has a variable-rate product is to talk with the lender sooner rather than later to determine what options there might be at the time your current loan would come up for renewal,” she said.
She said, for example, homeowners might qualify for help under the federal government’s mortgage modification programs.
Russell Kashian, a University of Wisconsin-Whitewater economics professor who tracks the state’s real estate industry, said people who need to sell their under water house to move or who want to refinance to take advantage of lower interest rates may have difficulty. But he said for anyone who plans to stay in their house for the long term and remains current on payments, being under water shouldn’t be a big concern. That will correct itself over time as payments are made and prices slowly appreciate, he said.
Kashian and Leibowitz said the housing bubble drove prices to unsustainable levels that clouded people’s perception of normal price growth.
“The expectation that property is going to appreciate 3% to 6% in the first couple of years was misguided to begin with,” Kashian said.
Growth in home values normally takes more time, he said.
“They talk about home buying as kind of like a piggy bank. Well, how long does it take to fill a piggy bank? It takes a long time,” Kashian said. “I don’t think that’s necessarily a horrible thing. What it means is that people are less mobile. They are not going to be able to move from one house to another, and they’ll have to commit to a community. And that’s a positive thing.”
Said Leibowitz: “Historically, housing has been a way to get rich slow, and it still is.”
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Source: Paul Gores Milwaukee Journal Sentinel (MCT)
