As home values continue to rise in Charlotte, fewer homeowners in the region are finding themselves “underwater” – the term for when homeowners owe more on their mortgages than their homes are worth.
According to a report released Wednesday, 13 percent of Charlotte-Gastonia-Rock Hill-area homeowners were underwater – also known as being in negative equity – in the first quarter. That was down from 17.6 percent in the fourth quarter of last year and 18.8 percent in the first quarter of 2012.
The report, by Irvine, Calif.-based CoreLogic, shows that since 2009, the peak of underwater homes in the Charlotte-Gastonia-Rock Hill occurred in the fourth quarter of 2011. Back then, 21.5 percent of homes were underwater. The percentage of Charlotte homes in negative equity has been on a downward trend ever since.
The decrease in underwater homes coincides with a housing market that’s been heating up in the Charlotte region and nationally. April marked the 14th consecutive month of year-over-year home price increases in the Charlotte area and U.S., according to CoreLogic. Real estate brokers are, in large part, attributing the increase in Charlotte home prices to dwindling inventory as buyers, in some cases, get into bidding wars and homes sell for more than list price.
Last week, the Charlotte Regional Realtor Association reported that inventory shriveled 27.5 percent in the Charlotte area in May from May 2012, leaving the region with a five-month supply of homes for sale. A widely accepted definition of a seller’s market is one in which the number of homes for sale is below a six-month supply.
The association also said the average sales price in May rose to $232,564, up 7 percent from May 2012.
Pat Riley, president of Charlotte-based real estate company Allen Tate Cos., said underwater homes are contributing to the low levels of inventory, thanks to “upside-down” homeowners being either unable or unwilling to sell.
“Those 13 percent of people that are upside-down, they’re out of the market,” he said. “By them not being in the market, it is causing homes to appreciate quicker.”
Riley said some people who are underwater have turned their homes into investment properties to take advantage of the hot rental market. The shortage of existing and new homes for sale is helping underwater homeowners become less so, as demand for housing puts upward pressure on prices, he said.
That means underwater homeowners, he said, are “getting healthier every day.”
CoreLogic also attributed the national decline in the percentage of underwater residential properties to rising home prices. Nationwide, 19.8 percent of homes were in negative equity in the first quarter, down from 21.7 percent in the fourth quarter. According to the company, 9.7 million U.S. homes were underwater at the end of the first quarter. Those homeowners had total negative equity of $580 billion, down from $631 billion in the fourth quarter.
Nevada was No. 1 in the U.S. for percentage of homes in negative equity in the first quarter. Of homes with a mortgage, 45.4 percent were underwater in the state.
In the Charlotte region, there were 388,317 homes with an outstanding mortgage in the first quarter. Of those, 50,292 were in negative equity and 23,639 were near negative equity, meaning they are at risk of becoming underwater if home prices start to fall.
During the first quarter of last year, 70,716 properties in the Charlotte region were in negative equity.
The Mortgage Bankers Association said Tuesday that mortgage rates rose last week to 4.15 percent, the highest level since March 2012. The association also said mortgage applications increased 5 percent last week.
Riley said increasing interest rates will help boost home sales — buyers who have been sitting on the fence are more likely to make a move when rates rise — and cause refinancing activity to decline. He expects interest rates to rise by 2 percentage points over the next few years.
Also, as fewer homes go underwater, the prospects for short sales decline dramatically, he said.
In Charlotte, short sales make up 12 to 14 percent of home sales, he said. Nationally, they constitute about 22 percent of sales, he said.
He said underwater homeowners in Charlotte are better positioned for their homes to grow in value because of the lack of inventory.
“Being here is much better medicine than being somewhere else in the country, because we’re correcting ourselves quicker.”
Roberts: 704-358-5248; Twitter: @DeonERoberts
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