Home Price Appreciation Has Led to Reduced Foreclosures
A 9 percent year-over-year increase in home sales for the first four months of 2014 has resulted in a rise of 6.8 percent in CoreLogic's Home Price Index for the same period. That home value appreciation will have "important ramifications" for the U.S. economy, one of which is a reduced foreclosure inventory, according to CoreLogic's June 2015 MarketPulse.
Homeowners with positive equity means an increase in wealth, which leaves the homeowner with additional expenditure funds or additional funds for further investments in the home through home improvement, according to CoreLogic Chief Economist Frank Nothaft in the report. Meanwhile, homeowners with negative equity who continue to pay on their principal for their amortizing mortgage loan will find their home values appreciating. CoreLogic's most recent home equity report, covering March 2015, found that 5.1 million U.S. homeowners were underwater – a decline of 1.2 million from a year earlier. CoreLogic estimates that a 5 percent rise in home values will bring an additional one million homeowners from being underwater up to positive equity.
Increasing home values have played a role in reducing foreclosure inventory, since homeowners who either have little equity or are underwater tend to have higher default rates. Nothaft said homeowners underwater by 20 percent or more had a default rate that was four times that of homeowners with a current LTV ratio of 80 percent. At the peak of the housing bubble in mid-2006, about 300,000 homes nationwide were in some stage of foreclosure; five years later, in mid-2011 – the trough of the housing and financial crisis – the number of homes nationwide in foreclosure had swelled to 1.5 million, Nothaft said. CoreLogic's April foreclosure report indicated a 25 percent year-over-year decline in foreclosure inventory nationwide.
"Employment recovery in the labor market, foreclosure alternatives such as loan modifications, and home value gains have worked to reduce this inventory," Nothaft said.
But while the housing market is better off that it was during that trough in mid-2011, Nothaft said it is not quite back up to a "normal" activity level.
"Sales and construction are still depressed, and too many families remain in default on their mortgage loans," he said. "The percent of homeowners with a mortgage who have missed three or more monthly payments or are in foreclosure proceedings dropped to 3.6 percent in April. While this was well below the record peak of 9 percent and the lowest in more than seven years, it remained about double the norm."