Fannie Mae Expects 1.7M Underwater Homes to Move into Positive Equity this Year

How will that change the housing market?

Palm Coast, FL, — April 25, 2013 – Government Sponsored Entity (GSE) Fannie Mae expects 1.7 million underwater homes to move into positive equity this year. Rising home prices will buoy consumer confidence and make people feel more certain about their future. They will help drive the overall economic recovery too.
The percentage of Americans who own their own home has declined from its peak in the past decade. Many were forced out by foreclosure or the threat of foreclosure. Deprived of credit, they became renters, at least for a while. At the same time, investors snapped up distressed properties and converted them into rental properties.
With rising prices and declining inventories of distressed properties for sale, rents are likely to rise. But since many leases are for at least one year, rental rates lag other market measures. New home production is still running behind new household formation. This will exacerbate the inventory decline until production picks up to meet demand.
A percentage of underwater homeowners would like to move but are frozen in place by their economic circumstances. They are able and willing to keep their mortgage obligations and other carrying costs current. They want to protect their credit. But they can’t sell their home because they are unable or unwilling to write a check to cover the remaining mortgage balance at a short sale closing.
Rising prices will lift some of them above water, freeing them to move. They will enter the market as sellers but also as buyers. Some will trade up, others will trade down. It’s difficult to predict the impact amid generally rising prices. Other factors will clearly be in play at the sale time; mortgage interest rates, loan underwriting standards, rental rates. Florida is likely to benefit from migratioin. More people will be free to sell their house up north for one in the south.
One thing is certain. The housing market has turned and is accelerating in the right direction. If the past is a guide, Palm Coast will see more dramatic changes than the market as a whole.
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