About 22 million Americans may lack enough home equity to move, keeping property listings tight and limiting sales as the housing market recovers, Zillow Inc. said.
Forty-four percent of homeowners with mortgages owed more than their properties are worth or had less than 20 percent equity in the first quarter, the Seattle-based real estate data company said in a report today. Those people probably are locked in to their residences, because listing a house and purchasing a new one generally requires equity of at least 20 percent to meet costs such as a down payment and broker fees, Zillow said.
The people who cannot sell are contributing to a dearth of home inventory on the market, which is restraining deals in the key U.S. spring selling season. There were 2.16 million homes available last month, the fewest for any April since 2001, the National Association of Realtors reported yesterday. While the low supply is helping to fuel price gains and lift home equity, values have to climb further to ease the shortage, Zillow said.
“Looking at the effective negative-equity rate could explain why recent, healthy declines in the number of underwater borrowers haven’t yet translated into more homes for sale,” Zillow Chief Economist Stan Humphries said in the report. “Things like real estate agents’ fees and a down payment for the next home traditionally come out of the proceeds from the prior home’s sale. Without enough equity, these costs will instead have to come out of a homeowner’s pocket, leaving many still stuck.”
More than 13 million homeowners were underwater in the first quarter, equal to about 25.4 percent of those with a mortgage, down from 13.8 million at the end of 2012, Zillow said. Another 9 million people had less than 20 percent equity. Las Vegas and Atlanta lead major metropolitan areas with the highest rates of so-called effective negative equity.
On a house valued at $200,000, the owner would have to owe $160,000 or less to have at least 20 percent equity.
While some homeowners will keep properties off the market because they have low equity, it doesn’t necessarily mean they can’t sell. People may be able to use funds from friends, relatives and savings to cover the difference, said Patrick Newport, an economist at IHS Global Insight in Lexington, Massachusetts.
“People could always buy a smaller house or find a few thousand dollars here or there,” he said.
Rising values will allow more homeowners to sell. House prices jumped 7.2 percent in March from a year earlier, capping a 6.7 percent increase for the quarter, the Federal Housing Finance Agency reported today. Gains were led by the Pacific area, which includes California and Washington, and the Mountain region, which includes Arizona and Nevada.
About 1.4 million homeowners will regain positive equity by the first quarter of 2014, according to a Zillow projection. Of the 30 largest metro areas, the majority of the newly freed homeowners will come from Los Angeles; Riverside, California; and Phoenix, Zillow said.