Home prices are rising, and homeowners have collectively regained trillions of dollars in home equity since the worst of the real estate crash. For some borrowers, however, it is not enough, not nearly enough to bring them back into the black on their home loans.
These so-called underwater borrowers are stuck in place, unable to sell without paying into their mortgages. For those deepest underwater, there is very little hope in sight.
"It's great news that the level of negative equity is falling, but what really worries me is the depth of negative equity. Millions of Americans are so far underwater, it's likely they may not regain equity for up to a decade or more at these rates," said Zillow Chief Economist Dr. Stan Humphries.
Nearly eight million borrowers, or 15.4 percent of homeowners with a mortgage, still owe more than their homes are worth, according to Zillow. While the numbers continue to improve, about half of those borrowers owe the bank at least 20 percent more than their homes are worth.
U.S. homeowners lost about $5 trillion dollars collectively in the housing crash, but home prices are now up about 30 percent from the trough of the market in March of 2012, according to the S&P/Case Shiller Home Price Index. They are still, however about 15 percent below the peak of prices in the summer of 2006. Home equity rose to $11.7 trillion in the first quarter of this year, the highest since 2007, according to new numbers from the Federal Reserve released this week.
That is causing ripple effects up and down the chain of the housing market, and leading to severe shortages of homes for sale nationwide.
"Because negative equity is concentrated so heavily at the lower end, it throws a real wrench in the traditional housing market conveyor belt," said Humphries. "Potential first-time buyers have difficulty finding affordable homes for sale because those homes are stuck in negative equity. And owners of those homes can't move up the chain because they're stuck underwater in the entry-level home they bought years ago."
David and Heather Littlejohn would have been moving up to a larger home this year, but they are still underwater on their mortgage. They are expecting their third child this summer, and their home, about an hour south of Eugene, Oregon, is bursting at the seams.
"We're structurally trapped," said David.
When we first interviewed the Littlejohns two years ago, they said they expected to be able to move soon, but doing that now would still require paying into the mortgage. Home prices in their area have rebounded somewhat, but they were deep underwater at the worst of the crash and are still recovering.
The Littlejohns paid $325,000 to build their home as newlyweds in 2005. It was then appraised at $425,000. David estimates it is probably worth about $280,000 today, but they owe about that much on the mortgage. Moving, with all its added costs, not to mention paying for a bigger home, is out of the question for now, but not necessarily for the future.
"Work has been healthy. If things continue down the path we're going, we'll do it the old fashioned way: We'll buy our way out. We have the capacity to save for that," David said.