Big rebound in home equity

The economy may be growing at a frustratingly slow pace, but one piece is booming: homeowners’ equity holdings — the market value of their houses minus mortgage debts — soared last year to $10 trillion, an increase of nearly $2.1 trillion.

Thanks to rising prices and equity levels, about four million owners nationally last year climbed out of the financial tar pit of the housing bust — negative equity.

Negative equity gums up people’s lives and the real estate marketplace as a whole. It makes it difficult or impossible to refinance out of a higher-cost mortgage into a more affordable one. It makes it painful to sell — owners must bring cash to the table to pay off what they still owe the bank. Plus almost no one wants to lend them money, at least not at reasonable interest rates secured by real estate, when they’re deeply underwater. So they’re likely to spend less, invest less and will probably not buy another house or sell the one they have.

So when four million owners manage to transition out of negative equity into positive territory, that’s significant news for them and for the economy overall.

Two statistical studies released last month offered a glimpse of where the country is in terms of homeowner equity, seven years after real estate began to crash. The first was the Federal Reserve’s quarterly “flow of funds” report, which, among other things, found that homeowner equity has rebounded to its highest level in eight years, though it’s still not quite back to the $12 trillion it was during the 2005 high point of the housing boom.

The second study, from real estate analytics firm CoreLogic, focused on the flip side, the shrinkage of negative equity. Researchers found nearly 43 million owners with mortgage debt have positive equity. Roughly 6.5 million are still in negative equity positions down from more than 12 million in 2009.

Not surprisingly, they are heavily concentrated in areas that saw the wildest price run-ups, the heaviest use of toxic loan products and the steepest plunges during the crash. In Nevada, 30.4 percent of all mortgage holders are underwater. In Florida, 28.1 percent. In Arizona, 21.5 percent. Still, all three areas have improved sharply in the past two years.

Although non-coastal California markets suffered some of the most dramatic declines in property values during the bust, researchers found that the state as a whole is nowhere near the top of the latest negative equity list. With 12.6 percent of mortgaged homes underwater, California has a lower overall negative rate than the national average (13.3 percent.) Among the best markets, if you’re measuring for positive equity: Texas, where just 3.9 percent of owners are in negative positions, Alaska (4.2 percent) and New York (6.3 percent.) Higher-priced houses generally have lower rates of negative equity. Just 8 percent of mortgaged homes worth more than $200,000 have negative equity, compared with 19 percent of homes under $200,000.

About 21 percent of all mortgaged homes nationwide have less than 20 percent equity and 1.6 million owners have less than 5 percent equity.

Kenneth Harney is a syndicated columnist.