About 20 million people had negative equity or less than 20 percent equity, down from 21.5 million in the prior three months. Las Vegas, Atlanta, and Orlando, Florida, led major metropolitan areas with the highest rates of borrowers with less than 20 percent equity.
Sales of existing homes fell 3.2 percent in October to a 5.12 million annual rate, the lowest level in four months, according to the National Association of Realtors. There were 2.13 million homes for sale at the end of the month, down from 2.17 million in September, the group said.
Balanced Market
Given the current turnover, it would take 5 months to sell those houses compared with 4.9 months at the end of September. For the past year, the supply of homes has been lower than the six-month level that is considered a balanced market.
“More properties on the market means the liquidity of residential real estate will pick up,” said Soss, of Credit Suisse. “Anything that increases inventory volume in the market will lubricate sales.”
On a house valued at $300,000, the owner would have to owe $240,000 or less to have at least 20 percent equity. If an owner lacking a 20 percent stake in a house is able to get a new mortgage that doesn’t require 20 percent down, the lender typically will require private mortgage insurance, or PMI. On a $300,000 mortgage, PMI could cost $200 a month or more.
The shortage of homes for sale has been worsened by investors buying properties to rent, said Lawler, the real estate consultant. Institutional investors including Blackstone Group LP have depleted inventory as they built portfolios of single-family houses to turn into rentals, he said. Blackstone has spent about $7.5 billion acquiring 40,000 homes in the U.S.
While that added to the record pace of price growth, the lower inventory has limited options for private buyers, he said.
“Institutional buyers have helped prices but they’ve created shortages that have held the market back,” Lawler said. An increase in supply means private buyers “will have a better chance to find a home,” he said.