The share of underwater homeowners in the Twin Cities metro area was among the smallest in the nation, adding to a swell of optimism about the prospects for a strong spring selling season.
At the end of the year, 17.6 percent of all homeowners in the metro had a mortgage that exceeded the value of their house, according to CoreLogic, which tracks home prices throughout the nation. That’s a slight decline from the previous quarter and the fourth quarter of 2011, but well below the national rate of 21.5 percent.
The declines are a sign that rising home prices are lifting a growing number of homeowners out of negative equity, a sign that more listings are likely to flow into the market.
“This will create more activity,” said Herb Tousley, director of the real estate program at the University of St. Thomas. “It’s an example of a rising tide lifting all boats.”
Even a small decline in the negative equity has big implications for the broader market. Across the country during the quarter, about 200,000 properties returned to positive equity. Still, 10.4 million residential properties with a mortgage were still in negative territory at the end of the year. That’s down from 10.6 million properties, or 22 percent, at the end of the third quarter of 2012.
“The scourge of negative equity continues to recede across the country,” said Anand Nallathambi, CoreLogic’s president and CEO. “There is certainly more to do, but with fewer borrowers underwater, the fundamentals underpinning the housing market will continue to strengthen.”
Nallathambi and others expect that trend to continue throughout the year.
The Twin Cities metro has fared relatively well because the region’s economy has shown consistent signs of improvement and the unemployment rate has fallen faster than the national average, giving buyers — and prospective sellers — more confidence.
Many sellers are in a more precarious position. Many who are underwater are unable to sell unless they’re willing to agree to a short sale — a process that can be difficult and lengthy — or bring cash to the closing to make up the difference between what they owe and what a buyer is willing to pay.
In fact, during most of the recovery, home sales in the Twin Cities have exceeded new listings. During February there were about 4,800 new listings compared with more than 6,400 pending and closed sales, causing overall listings to drop to a 10-year low, according to the Minneapolis Area Association of Realtors.
Those inventory constraints have caused consistent increases in sale prices. During February, the median price of all sales rose 15.5 percent to $160,000 — the 12th consecutive month of price gains.
“It’s definitely a positive cycle,” said Aaron Dickinson, a sales agent with Edina Realty. He and other agents say the market is being stifled by a shortage of listings, and sales would be much stronger if more inventory were available.
So declines in negative equity portend better times ahead, especially for buyers.
“Declining negative equity foretells increasing listings in the future,” he said. “The question is always when and how much.”