The typical area homeowner who owes more than his mortgage is worth will not climb back into the black until 2015, according to a new report.
The Washington area was predicted to fare the best out of the 10 surveyed metropolitan areas, according to the report from First American CoreLogic. The average “underwater” borrower in Detroit, which has been plagued with an unemployment rate well above the national average, was not predicted to see positive equity in his house until after 2020.
The main issue for underwater borrowers trying to recover is the type of mortgage they have and whether or not they have a fixed-rate loan, said David Dowries, principal broker of Portfolio Realty in Centreville.
Fixed rate loans can provide for steadier payments, for example, whereas interest owed on adjustable-rate mortgages can fluctuate wildly depending on prevailing market data and interest rates.
“If their job is stable, then they can continue to afford” making payments, he said. “This area is not as hard-hit as the rest of the U.S.”
Prep for the long haul?
Area Expected year for positive equity
Washington: 2015
Atlanta: 2016
Dallas: 2016
Riverside, Calif.: 2016
Boston: 2017
Cape Coral-Fort Myers, Fla.: 2020
Pittsburgh: 2020
Las Vegas: 2020
Lancaster, Pa.: 2020
Source: First American CoreLogic
Indeed, the Washington region’s 6.9 percent unemployment rate in January was the lowest among the country’s 15 largest job markets, according to the Bureau of Labor Statistics. A rebound in home prices is also key for homeowners. The region saw a 3.83 percent increase in prices in January from a year before, and prices are predicted to increase 1.84 percent between January 2010 and January 2011, according to First American.
Still, underwater borrowers may not have the luxury of waiting that long. One option is to go through a short sale, in which they sell their homes at a loss to avoid a foreclosure. The Obama administration also has introduced new provisions to its loan-modification program to help struggling homeownersavoid foreclosure.
The changes would be helpful to some underwater borrowers, said John Taylor, chief executive officer of the National Community Reinvestment Coalition.
“But I’m not optimistic that the incentives will be enough to entice servicers and investors to reduce loan principals,” he said. “Will they help seven million people who are at risk of foreclosure? I will be pleasantly shocked if investors step up for half a million borrowers.”
