Homeowners get a $1.7 trillion home equity holiday bonus

US housing moving in right direction: Pro
US housing moving in right direction: Pro   

Home prices slowed down dramatically in 2014, but still made enough gains to give U.S. homeowners a collective $1.7 trillion in additional home equity, according to real estate company Zillow.

Some tapped that immediately, taking out home equity lines of credit. In fact, that was the fastest growing segment of the mortgage market.

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Others, many of whom came up from under water on their mortgages, decided to sell. Inventory is up nearly 12 percent from a year ago. Seven million borrowers have escaped negative equity since 2012, either through foreclosure, short sale, paying down debt or home price appreciation; nearly 9 million are still drowning in housing debt, according to Zillow.

"Looking at negative equity helps us understand so many of the currently out-of-whack dynamics in the housing market, including inventory, rapid home value appreciation and weak sales volumes. None of these problems will be solved overnight, in large part because negative equity will likely be a part of the housing market for years, and easily into the next decade in some hard-hit areas," Zillow Chief Economist Stan Humphries said in a release.

A sign advertising an open house in Laguna Beach, Calif.
Scott Mlyn | CNBC
A sign advertising an open house in Laguna Beach, Calif.

As the housing recovery ages, it is becoming ever more local. Homes in less expensive neighborhoods are far more likely to be underwater than those in top-tier neighborhoods. On the other hand, some local markets are now considered overvalued. Texas, which was long on the sidelines of home price appreciation, is seeing huge gains. Austin and Houston rank at the top of a list of overvalued markets, compiled by Fitch Ratings. San Antonio is fourth.

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"Texas's current growth spurt is out of character with its price history, and Fitch has struggled to find adequate support from fundamentals to explain high, persistent growth rates," the Fitch report said.

Texas has seen considerable job growth, as several companies have moved headquarters and/or workers there; home builders have seen great demand, and most, so far, are not concerned about the drop in oil prices.

Overall, Fitch sees most U.S. home prices to be "sustainable," and does not expect to see all that much movement in 2015. Others are now calling housing "expensive," at least in some major markets.

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"Home prices in Los Angeles have grown by 35 percent since 2012, so valuations look expensive again relative to fundamentals," housing analysts at Goldman Sachs said in a new report. "A similar pattern occurred in Miami: valuations looked 70 percent too expensive in 2007, 5 percent too expensive in 2012, and now 25 percent too expensive again as of 2014."

These affordability valuations will likely change in 2015, not due to much growth in real home prices, but to higher mortgage interest rates. Supply of homes for sale is increasing, but demand, as always, is the wild card.