Fewer Ohio homeowners "underwater"

Staff Writer
Columbus CEO

Home sales in the Cincinnati area climbed 14 percent in October, and the average price of the homes sold rose 1.6 percent from October 2012.

That’s good news for homeowners whose mortgage balances continue to exceed the value of their homes.

Fewer Ohio homeowners are “underwater” on their mortgages today than a year ago, thanks in part to a run-up in home sale prices over the past two years. But with sale price increases now slowing, fewer homeowners could regain equity in their homes and eliminate being underwater on their loans as quickly as before.

The average price of 1,895 single-family homes sold in the Cincinnati area last month, including Butler and Warren counties, was $154,433, up 1.66 percent from the average sale price in October 2012, according to figures released Wednesday by the Cincinnati Area Board of Realtors.

Last month’s average price is 22 percent higher than the low of $127,018 set in January 2009 following the housing market collapse, the realtors’ group said.

Prices remain below the Cincinnati market peak price of $195,370 reached in June 2007.

The higher home sale prices over time have helped local homeowners regain equity in their homes.

Through the end of September, 24.3 percent of Hamilton County homeowners had negative equity in their homes, according to figures released today by Zillow Inc., a Seattle-based real estate data company. That compares with 33.6 percent a year ago.

In Butler County, 24.3 percent remained underwater as of Sept. 30, compared with 30.1 percent a year ago. In Warren County, 17.3 percent of homeowners had negative equity at the end of September, compared with 26 percent last year.

As a whole, 23 percent of Ohio homeowners are considered underwater by Zillow.

“Certain neighborhoods are increasing faster than others, but overall I think (the local housing market) is improving,” said David Gunn, head of mortgage for Fifth Third Bank’s greater Cincinnati affiliate.

“Our part of the country didn’t have the great highs that some others parts of the country had, and we didn’t have the great lows that some parts had, so we’ve been relatively steady,” Gunn said.

“The steep peak-to-trough losses experienced by most markets during the housing bust produced a lot of negative equity,” said Svenja Gudell, director of economic research for Zillow. Inc., in an email. “These high levels of negative equity in turn caused inventory shortages across the nation, as many homeowners were locked into their homes being deeply underwater. This constrained supply in for-sale homes, paired with healthy demand by consumers and investors over the summer, caused bidding wars and price spikes, increasing home values at a very fast rate.”

As a result, the national negative equity rate fell at its fastest pace ever in the third quarter, dropping to 21 percent of all homeowners with a mortgage, Zillow officials said.

However, the rate at which home prices are growing back is expected to slow in 2014, according to Zillow.

Projections are for an index of home values nationally to end 2013 up 6.7 percent on average year-over-year. That’s before falling to 4.3 percent appreciation in 2014 and eventually 3.4 percent appreciation by 2018, according to Zillow.

The company conducted a survey of more than 100 economists and investment strategists to come up with those estimates.

The experts surveyed said they expect home values in the U.S. to fully recover in the first quarter of 2018.

“As home value appreciation rates slow, the rate at which negative equity is reduced will also slow. This means that negative equity will stay with us for a while, especially in areas where homeowners are very deeply underwater,” Gudell said.

High levels of negative equity and tight financing is tied to slower economic growth that affects everybody, said LaVaughn Henry, vice president and senior regional officer of the Cincinnati Branch of the Federal Reserve Bank of Cleveland.

Underwater homeowners are more at risk for foreclosure and have less spending power, Henry said. They have more difficulty selling their homes because they can’t get a high enough sales price to pay the loan off without coming up with the cash out-of-pocket. Moreover, for most people, their house is their single biggest asset and acts as a source of wealth.

Appreciation rates of 4 percent to 5 percent a year “means we’re looking at another three to four years before these homes with negative equity become right-sided again,” Henry said.

“When you have negative equity, it means consumption is going to grow slower,” he said. “If total consumption isn’t growing as fast, that means total demand for labor isn’t growing as fast.”

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©2013 the Journal-News (Hamilton, Ohio)

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