America's Underwater Homeowners Are Afloat Once Again

At the bottom of the housing crash, more than a third of all homeowners owed more than their houses were worth. They were plunged underwater by a combination of collective overborrowing during the housing bubble and plummeting prices during the crash. Bit by bit over the years, homeowners have been climbing out of that hole, and new data from Black Knight Financial Services show that borrowers are approaching a threshold that will see only one in 10 U.S. borrowers underwater on home loans.

A main cause is the broad increase in home prices, particularly in areas that cratered the most. But there’s another force at work. Foreclosures wiped away the mortgages of many of the most indebted. In January 2010, 10 percent of borrowers owed at least 50 percent more than their homes were worth. By January 2014, that number fell to 2 percent of borrowers. Cash buyers have flooded the markets, making up more than a quarter of all home sales in March. That means homes that were once financed with debt are now paid for entirely with equity.

With so many homeowners above water, the economy may benefit. In theory, it should be easier now for homeowners to move to new areas of the country in search of better jobs. And they may find it more palatable, both financially and emotionally, to sell their houses. The real estate recovery has been marked by record low inventories, so being able to at least break even, if not make money on a sale, could nudge more sellers into the market.

As the summer house-hunting season fast approaches, we’ll be able to see if more newly afloat borrowers plan to test the waters.

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