Rising equity and falling inventory in real estate market.

The Lawhead Team would like to share a positive article from the Union Tribune we lately came across about rising equity in the housing market.


With all the depressing reports about the “fiscal cliff” and potential rollbacks in tax benefits for homeowners, you might have missed some of the positive trends under way for real estate.

Start with homeowners’ equity. It’s growing again significantly, following five years of declines and stagnation. This is a huge piece of good news that hasn’t received the attention it deserves. After hitting a low of $6.45 trillion in the final three months of 2011, Americans’ combined home equity jumped nearly $1.3 trillion during the next nine months to $7.71 trillion — a 20 percent gain — according to the “flow of funds” quarterly estimate released in December by the Federal Reserve.

A homeowner’s equity is the difference between the market value of his or her house and the amount of mortgage debt it is carrying. Equity is a key measure of wealth — often the largest single item on a family’s financial balance sheet — and the Federal Reserve tracks the estimated equity holdings of millions of owners to come up with its quarterly numbers. As recently as 2007, homeowners’ collective equity exceeded $10.2 trillion. Between that year and late 2011, owners lost nearly $4 trillion in real estate wealth.

So the $1.3 trillion turnaround during the first nine months of 2012 was a big deal. It reflected the first sustained rebound in home prices in a long time in many local real estate markets. In a study released just before Christmas, researchers at Zillow.com found that of 177 major metropolitan markets, 135 had experienced net increases in cumulative home values during 2012.

Zillow broke it down into specific dollar amounts added to owners’ net worth, city by city: Owners in Los Angeles gained a cumulative $122.1 billion during the year, Washington, D.C., owners $40.4 billion, San Diego $31.2 billion, Seattle $20.1 billion, Boston just under $16 billion, Tampa, Fla., $8 billion, Sarasota, Fla., $5 billion, Tucson, Ariz., $3.8 billion, Oklahoma City $3.3 billion and Columbus, Ohio, $3.5 billion.

These are big numbers and hard to grasp, but think of it this way: The odds are good that even if you own in a market that experienced severe price declines during the housing bust, the value of your house rose last year, at least modestly. Even if you have negative equity, it’s likely that, thanks to appreciation in your area and your continuing payment of principal on your mortgage, your equity position improved.

equitySome of the most impressive gains in values were in areas that suffered the deepest price plunges — and the most painful losses in owners’ equity — between 2007 and 2011. According to a study by Realtor.com, list prices of houses in Phoenix were 21.4 percent higher in November than they were 12 months earlier. In Riverside-San Bernardino, prices were up 13.3 percent. In Las Vegas 10.6 percent; Miami 10 percent.

What’s causing price surges like these in cities that cratered just a few years back? Part of it is a recognition by buyers, including investors, that prices hit bottom and won’t drop any further. The intrinsic economic values of houses and land simply exceeded the near giveaway, foreclosure-sale prices prevalent in the post-recession years. Now prices are correcting upward as buyers come back into the market.

But virtually all major real estate markets across the country have seen declines in the homes for sale, in part because some sellers still fear they won’t get a good price, and because in some areas large numbers of potential sellers are still underwater on their mortgages.

Fewer listings mean more competition for what’s available for sale on the market, sometimes multiple offers, higher prices, and even the return of escalation clauses in contracts, where buyers’ offers contain automatic increases in multiple bid situations.

Ultimately, higher prices should begin to persuade more sellers to list their homes, pushing inventory higher and creating a healthier, more balanced real estate environment for 2013.

 Union Tribune article on rising equity and falling inventory may  be found here: http://www.utsandiego.com/news/2013/jan/06/tp-real-estate-rebound-seen-in-rising-equity/?page=1#article