At The Daily Beast, we’ve been banging the drum of a housing recovery for months. Every few weeks, another new piece of data comes—new home sales, housing starts, housing permits, prices and so on—that confirms that a huge sector of our economy that has been moribund or depressed since 2007 is on its way back. We’ve focused a lot on housing-related measures that are up so far this year. This week brings two significant points that are down over the year and over the third quarter: negative equity and delinquencies.
According to the Mortgage Bankers Association, the delinquency rate for residential mortgages dropped to 7.4 percent for the third quarter, a .18 percentage point drop from the second quarter and a .59 percentage point drop from the year before. The delinquency rate is separate from loans that have actually started foreclosure. The percentage of homes in the third quarter on which foreclosure actions in the third quarter was .90 percent, down .06 percentage points from last quarter and down from 1.18 percent a year ago.
All told, the combined portion of residential mortgage loans that were either delinquent or in foreclosure totaled, unadjusted, 11.71 percent, a .92 percentage point decrease from the third quarter last year. Foreclosure starts, according to the report, were at their lowest level since 2007. The portion of loans in foreclosure saw the biggest quarterly drop in the history of the MBA’s survey, and are at their lowest level since the beginning of 2009. Five states—Florida, California, New York, New Jersey, and Illinois—make up more than half of the loans in foreclosure.
Another survey, released this week by RealtyTrac, showed that foreclosure starts—meaning scheduled foreclosure auctions and default notices—were up 3 percent in October from September but were down 19 percent from October, 2011.
These improvements reflect both a strengthening economy, meaning that more people have the income necessary to make continued payments on their homes. They also suggest that the so-called “shadow inventory,” the portion of homes being held off the market because their mortgages are delinquent or are in foreclosure, is shrinking. Mike Fratantoni, the MBA’s Vice President of Research and Economics said in a statement accompanying the report that the decline in the 90-day delinquency rate and foreclosure rate “indicates a significant drop in the shadow inventory of distressed loans-a real positive for the housing market.”
Some analysts have suggested there may be as many as 3 million of these homes, that, when brought on the market, could depress new homebuilding activity and prices, both of which have been growing steadily. Data from the National Association of Realtors suggest that the inventory of homes available for sale has shrunk considerably.
The second piece of good news came from Zillow, the real estate research firm. It released a report Wednesday that shows home values going up, way up, marking the biggest single quarter gain since 2006. In the third quarter, the portion of homeowners with outstanding loans who are “underwater”, meaning they have homes worth less than their mortgage, fell to 28.2 percent from 30.9 in the previous quarter. In total, these homeowners owe some $1.02 trillion more than the value of their homes, which, on average, is $73,163 more than their homes are worth.
Some 15 million homeowners are still underwater, which makes it more difficult to sell their homes or refinance their mortgages to take advantage of historically low mortgage rates. But as that number comes down, it means more refinancing activity, which puts more cash in people’s pockets. It also puts more people in a position to sell their homes, which could help contribute to a further rise in sales. More generally, the economy will continue to brighten as indebted individuals are able to transition from paying off old debts to saving and spending more.
The report also found that a low portion of these underwater homeowners were delinquent on their mortgages. Even though their loans are now more expensive than their homes, these homeowners continue to diligently make mortgage payments—Zillow found that just over 90 percent of those owners remain current on their mortgages.
Negative equity, like the housing crisis more broadly, is largely concentrated in a few parts of the country, like California, Florida, and Nevada. In some of these badly hit housing markets, so many homes are underwater or in foreclosure, that inventory is actually constrained. And so buyers are bidding up home values on the comparatively small number of homes on the market, a dynamic that brings more and more homeowners up form underwater. According to Zillow, four of the areas experiencing the smallest declines in negative equity were in metro areas that are basically synonymous with the housing crisis: Phoenix, Las Vegas, Denver, Sacramento, and Orlando. Zillow also projects continued appreciation in home values across the board, meaning that negative equity should continue to come down, and refinancing activity and sales should continue their rise.
The housing recovery has been fitful, and for the millions in foreclosure, it’s coming too late. But it’s here, and it’s real, and it’s getting stronger.