The number of Americans who owe more on their mortgages than their homes are worth fell at the fastest pace on record in the third quarter as prices rose, a sign supply shortages may ease as more owners are able to sell.
The percentage of homes with mortgages that had negative equity dropped to 21 percent from 23.8 percent in the second quarter, according to a report today from Seattle-based Zillow Inc. The share of owners with at least 20 percent equity climbed to 60.8 percent from 58.1 percent, making it easier for them to list properties and buy a new place.
“Home sales will pick up very nicely when people gain the equity they need to sell their house and have a down payment for the next one,” said Neal Soss, chief economist at Credit Suisse Group AG in New York. “There’s a magnifying effect on sales -- people are able to list their home and sell it, and odds are they’re going to go on and buy another one.”
A shortage of inventory has forced homebuyers to compete, driving up prices and leaving some shoppers out of the market, said Thomas Lawler, a former Fannie Mae economist who now is a housing consultant. The number of homes for sale reached a low of 1.8 million in early 2013, the fewest in more than a decade, according to data from the National Association of Realtors.
“The pent-up demand from people who now have enough equity to sell their homes will help next year,” said Lawler, president of Lawler Economic & Housing Consulting LLC in Leesburg, Virginia. “We’ll see the effect during the spring selling season. Not a lot of people put their homes on the market during the holidays.”
While the supply of homes limited sales, it boosted price growth, said Michelle Meyer, a senior U.S. economist at Bank of America Corp. in New York. Shortages have caused buyers to compete for properties by raising the price they offer, she said. The median price of an existing home rose 12.8 percent last month, the Realtors’ group reported yesterday. In August, it jumped 13.4 percent, the fastest rate since the height of the real estate boom in 2005.
“We’ll see the pace of price growth moderate next year,” said Meyer. She estimates prices will gain 8 percent in 2014, compared with 10 percent in 2013.
The real estate recovery has supported economic growth for almost two years as buyers make ancillary purchases such as home decor and appliances, Meyers said. Consumer spending accounts for about 70 percent of the economy. Gross domestic product grew at a 2.8 percent pace in the third quarter, up from 2.5 percent in the prior period.
“Whenever we see a house turn over we see furniture sales and renovations that add to consumer spending,” she said. “With the real estate market recovering, people are feeling more confident about their situation, which makes them more willing to spend.”
About 10.8 million homeowners were underwater on their mortgages in the third quarter, down from 12.2 million in the second quarter, Zillow said. The number of people owing more than their homes were worth peaked at about 15.7 million people in the first quarter of 2012 when real estate prices began to rise.