There’s been some great news in the mortgage and real estate world lately – namely, the fact that nearly one million U.S. homeowners came up from underwater on their home loans in the third quarter, finally owing less than their homes are worth. According to recent data from Zillow, a Seattle-based real estate firm, the nation’s overall negative home equity rate fell to 13.4 percent of homeowners with a mortgage. That’s down a full percentage point from the second quarter and from 16.9 percent a year ago. Historically, the typical negative equity rate is lower than 5 percent.
So what’s behind this positive change? Rapidly rising home prices seem to be the driving force. The gains had been contracting in the first half of 2015; however, home value gains expanded in October, increasing 6.8 percent from October 2014. The recent price gains have helped reduce negative equity by a collective $60 billion in just three months. While the increase in home equity is a sizable improvement, the negative equity crisis is yet to be fully resolved. More borrowers will now be able to refinance, but a large number continue to be “stuck.” This is one of the key reasons why housing inventory remains so tight.
Housing markets with higher rates of negative equity will have fewer homes for sale, as homeowners are stuck with their homes, unless they are willing to take a loss on the sale. Negative equity is concentrated in lower-priced homes, so this especially hurts the first time buyers who are usually looking to buy those homes. The supply of homes for sale is very tight nationwide, but it is especially tight at the entry level.
Mortgage Rate Update
Mortgage Rates This Week: Neutral
This week, mortgage rates have been neutral, with last week’s MBS worsening by -10 bps not being significant enough to affect rates or fees.
Mortgage Rate Forecast: Neutral
As for this week’s mortgage rate forecast, analysts predict rates to remain neutral.
This Week’s Potential Volatility: High
This week’s potential volatility will be high, as the Weekly Jobless claims and Retail Sales reports are due to come in.
The Bottom Line
If you are weighing the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.