Housing market crash effects fade in 2013

American homeowners have become all too familiar with American homeowners have become all too familiar with the concept of being underwater, when the mortgage is greater than the value of the home. Photo Credit: iStock

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Negative equity. There was a time when most borrowers had never even heard the term.

But with the housing market crash five years ago, millions of homeowners became intimately familiar with the concept of their homes being worth less than the outstanding mortgage balance, also known as being "upside down" or "underwater." As in, you're drowning in mortgage debt.

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We've learned so much over the past half-decade about how having negative equity in your home (as opposed to positive equity) affects how you think about your finances, your home, and how you spend your money.

The bad news is that when homeowners believe they are underwater or their home's value is at par with their mortgage, they are less likely to spend. The reduction in spending translates directly to the general economy. When consumers spend more, the economy gets stronger.

(The last few years have been a real-life test as to what happens when no one is spending, or not much anyway. While the latest studies show that life is pretty good for the top 1 percent of earners, most of the remaining 99 percent are mired in a relatively poor economy.)

The good news is that home prices are rising and more homeowners are finding that they have gone from having negative equity to being at par to having at least some small amount of positive equity in a relatively short period of time.

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(We know that every day your house is underwater can feel like an eternity, but the housing markets have been recovering faster than many industry observers imagined they would.)

According to CoreLogic, a property information analytics provider, at the end of the first quarter of 2013, 9.6 million homes (roughly 19.7 percent of all homeowners with a mortgage) had negative equity. By the end of the second quarter, 2.5 million homeowners had moved into positive equity, leaving just 7.1 million homes with negative equity.

The total amount of negative equity was estimated to be $576 billion at the end of the first quarter, and only $428 billion at the end of the second quarter. That means homeowners gained more than $148 billion in equity.

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On a state level, the CoreLogic Negative Equity survey found that Nevada had the highest percentage of mortgaged properties in negative equity at 36.4 percent; if you add the category of "near negative equity," which essentially means the property is at par or just under par, that number rises to 40 percent.

Nevada is followed by Florida (31.5 percent negative equity, 35 percent including near negative equity), Arizona (24.7 percent negative equity, 29 percent including near negative equity), Michigan (22.5 percent negative equity, 27 percent including near negative equity), and Georgia (20.7 percent negative equity, 26 percent including near negative equity). These top five states combined account for 34.9 percent of negative equity in the U.S.

Of the largest 25 metropolitan areas, Miami-Miami Beach-Kendall, Fla. had the highest percentage of mortgaged properties in negative equity at 36.5 percent, followed by Tampa-St. Petersburg-Clearwater, Fla. (33.8 percent), Phoenix-Mesa-Glendale, Ariz. (25.6 percent), Riverside-San Bernardino-Ontario, Calif. (24.8 percent) and Warren-Troy-Farmington Hills, Mich. (24.3 percent).

Homeowners with both a first and second mortgage (or a home-equity loan or line of credit) are more underwater than homeowners who only have a primary mortgage. Homeowners with one mortgage owe an average of $217,000 and are underwater by about $51,000. Homeowners with a first and second mortgage owe $292,000 and are underwater by an average of $75,000 according to the study.

One cause for concern is that the study noted the bulk of home equity is concentrated at the higher end of the housing market. It provided this example: 91 percent of homes valued at greater than $200,000 have equity, compared with 80 percent of homes valued at less than $200,000.

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A homeowner who loses his or her job, and doesn't have much equity in the home, may face foreclosure, whereas the homeowner who has equity might only have to sell the property to get out of financial jeopardy.

The best news, however, is that the strong 2013 housing market has helped reverse the tide of negative equity, and homeowners, particularly home sellers, are the clear winners.

(Ilyce R. Glink’s latest book is "Buy, Close, Move In!" If you have questions, you can call her radio show toll-free (800-972-8255) any Sunday, from 11a-1p EST. Contact Ilyce through her website, www.thinkglink.com.)

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