Fewer Ohio homeowners ‘underwater’

Springfield region’s home sales increase.


1. Is your mortgage still underwater? As home values rise, more mortgage borrowers will regain equity. However, home values are not expected to fully recover until 2018.

2. There's expected to be a slower rate of home value appreciation going forward as the housing market gets further away from the crash. Thus, if your mortgage is underwater, it will take longer for the value of your house to rise.

3. Not underwater? This still impacts you. The housing market is tied closely to overall economic growth, and historically high levels of negative equity above 20 percent nationwide means those people upside down on their house aren't spending as much money as they could.


View a database comparing October existing home sales statewide online only at www.springfieldnewssun.com.

Home sales in the region including Springfield climbed nearly 6 percent in October, and the average price of the homes sold rose 4.7 percent from October 2012.

That’s good news for those 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 those 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 432 single-family homes sold in the seven-county area last month was $111,086, up 4.7 percent from the average sale price in October 2012, according to figures released Wednesday by the Ohio Association of Realtors.

The area includes Clark, Miami, Champaign, Logan, Shelby, Auglaize and Mercer counties.

Higher home sale prices over time have helped some local homeowners regain equity in their homes.

Through the end of September, 26 percent of Clark 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 36 percent a year ago.

In Champaign County, 22.9 percent remained underwater as of Sept. 30, compared with 31.8 percent a year ago.

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, which includes Cincinnati, Dayton and Springfield.

“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 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.”