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Aug. 30, 2013

Economy Watch: Negative Equity Continues to Drop

By Dees Stribling, Contributing Editor

Zillow said on Thursday that it estimates that the national negative equity rate fell to 23.8 percent of all homeowners with a mortgage during the second quarter, down from 25.4 percent in the first quarter. As home prices rise in most markets, the number of underwater mortgages slowly declines; this is the fifth quarterly drop for that painful metric, according to the real estate data specialist. Of U.S. all homeowners–roughly one-third of homeowners don’t have a mortgage and own their homes free and clear–16.7 percent are underwater.

During the second quarter of 2013, more than 805,000 American homeowners edged out from under the weight of negative equity. Still, more than 12 million homeowners with a mortgage remain underwater, Zillow notes, and even those whose mortgages aren’t underwater can still find it hard to trade up. The percentage of mortgages whose loan-to-value ratio is more than 80 percent—which makes it difficult for a homeowner to afford the down payment on another home—is 41.9 percent of homeowners with a mortgage.

On average, a U.S. homeowner in negative equity owes $74,700 more than what their house is worth, or 42.3 percent more than the home’s value. While roughly a quarter of homeowners with a mortgage are underwater, 92 percent of those homeowners are current on their mortgages and continue to make payments, according to Zillow.

GDP surprises on the upside

The Bureau of Economic Analysis reported its revised–second–estimate for U.S. 2Q GDP on Thursday, putting the annualized rate of economic growth nationwide at 2.5 percent in the second quarter. That compares positively with the previous, or “advance,” estimate of annualized GDP growth of 1.7 percent for the quarter. A final estimate will be published in a few weeks.

According to the BEA, the increase in real GDP in the second quarter reflected stronger personal consumption expenditures (people out buying things), private inventory investment—businesses buying things—and exports, which are foreigners buying our things. Also, increases in nonresidential fixed investment (part of which is CRE) and residential real estate investment were partly offset by drops in federal and other government spending. Imports, which are a subtraction in the calculation of GDP, increased.

Nonresidential fixed investment increased 4.4 percent during the second quarter, compared to a decrease of 4.6 percent in the first. Investment in nonresidential structures (CRE) increased 16.1 percent, a wide upward swing from the decrease of 25.7 percent in 1Q13. Public spending remained a drag on GDP, with federal government consumption down 1.6 percent in the second quarter, while state and local government spending dropped 0.5 percent.

Unemployment claims dip

The U.S. Department of Labor reported on Thursday that for the week ending August 24, initial unemployment claims were 331,000, a decrease of 6,000 from the previous week. The less volatile four-week moving average was 331,250, an increase of 750 from the previous week.

Also on Thursday, buoyed by the GDP news, Wall Street experienced another up day, with the Dow Jones Industrial Average gaining 16.44 points, or 0.11 percent. The S&P 500 was up 0.2 percent and the Nasdaq advanced 0.69 percent.

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