Home equity values roar back


WASHINGTON -- With all the depressing reports about potential rollbacks in tax benefits for homeowners, it would be easy to miss some of the positive trends for real estate.

Start with homeowners' equity. It's growing again significantly after five years of declines and stagnation. After hitting a low of $6.45 trillion in the final three months of 2011, Americans’ combined home equity jumped nearly $1.3 trillion during the next nine months to $7.71 trillion -- a 20 percent gain -- according to the “flow of funds” quarterly estimate released in December by the Federal Reserve.

Equity is the difference between the market value of a house and the amount owed on the mortgage. For real estate that would sell for $400,000 on which the mortgage balance is $200,000, the equity is $200,000.

As recently as 2007, homeowners’ collective equity exceeded $10.2 trillion. Between that year and late 2011, owners lost nearly $4 trillion in real estate wealth.

So the $1.3 trillion turnaround during the first nine months of 2012 reflected the first sustained rebound in home prices in a long time in many real estate markets. In a study released just before Christmas, researchers at Zillow.com found that of 177 major metropolitan markets, 135 had experienced net increases in cumulative home values during 2012.

The odds are good that even if owners of houses in markets that experienced severe price declines during the housing bust, had inceases in house values last year, at least modestly. For those with negative equity, it's likely that, thanks to appreciation in and continuing payment of principal, the equity position improved.

What's causing price surges? Part of it is a recognition by buyers, including investors, that prices the intrinsic economic values of houses and land exceeded the foreclosure-sale prices prevalent in the post-recession years. 

But something else has been at work: Virtually all major real estate markets have experienced declines in availability of homes for sale, in part because some sellers still fear they won't get a good price, and because in some areas large numbers of potential sellers are still underwater on their mortgages. 

Fewer listings mean more competition for what's available -- sometimes multiple offers, higher prices, and even the return of clauses in contracts for automatic increases in multiple-bid situations. That's well under way in parts of California, the Pacific Northwest, and the District of Columbia, among other areas.