California leads the Country in Underwater Mortgage Recovery

It looks like California is the golden state as it leads the country in underwater mortgage recovery. Zillow’s latest Negative Equity Report shows that the annual percentage of underwater homeowners has gone down by 44% in California during the September 2012 to September 2013 timeframe – nearly double the national change of just 22.9%.

In addition to low housing inventory, the unprecedented amount of monetary easing from the Federal Reserve has acted like a life preserver to the real estate market. However, many Americans still find themselves underwater or anchored to their current homes.

Across the nation, there are approximately 10.8 million homeowners who still owe more than their homes are currently worth. Zillow also finds that the effective negative equity rate — homeowners with less than 20 percent home equity — is at 39.2 percent. Meanwhile, roughly one in seven homeowners owe more than double what their home is worth.

A homeowner technically reaches positive equity when the market value of the house exceeds the outstanding loan balance by any amount, but the associated costs of listing a house and moving prevents many Americans from selling. Zillow notes that listing a home for sale and buying a new one typically requires equity of 20 percent or more to comfortably meet related expenses.

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In September, home prices across the nation increased on a year-over-year basis for the 19th consecutive month. According to CoreLogic, a property information and analytics provider, home prices jumped 12 percent in September from a year earlier. In fact, home prices have posted double-digit gains for eight straight months.

Home prices are still 17.4 percent below their bubble peak in April 2006, but every state logged an annual increase in September. Looking ahead, Zillow predicts the negative equity rate among all homeowners with a mortgage will decline to 18.8 percent by the third quarter of 2014.

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