The housing rebound has helped about 150,000 underwater Bay Area homeowners regain equity – the fastest rebound rate in the country – although about 200,000 still owe more than their homes are worth, according to a real estate report.
Throughout the nine-county region, about 18 percent of all homes with a mortgage – or 205,819 homes – were underwater as of June 30, according to real estate service Zillow.com. That’s a big comeback from just 15 months earlier, when negative equity peaked both locally and nationally.
In late March 2012, almost a third of Bay Area homeowners with mortgages – 31.2 percent, or 355,879 homes – had loans larger than their house’s value.
About one-third of homes are owned outright with no mortgage; they are excluded from the percentage rates.
“The Bay Area is getting out of negative equity at a much faster pace than anywhere else in the country,” said Stan Humphries, chief economist for Zillow. “It was a huge percentage point decrease there. Nationally the decrease is much smaller.”
Nationwide, the negative equity rate is 23.8 percent of mortgaged homes, Zillow said.
Home prices surge
Most of the gains are because of a surge in home prices as local real estate markets have grown heated. A smaller share stems from underwater homes changing hands, either as foreclosures or short sales, thus wiping out their negative equity.
The report comes as Richmond – among the areas most underwater – considers taking the radical step of invoking eminent domain to forcibly seize underwater mortgages and slash their principal to restore some equity to the homeowners. Richmond says the goal is to prevent foreclosures and stabilize neighborhoods.
Being underwater has huge implications for a homeowner, particularly when combined with a financial shock – death, divorce, job loss or mortgage payments resetting higher, for instance.
People who have equity in their homes, the largest asset for most Americans, generally have more consumer confidence.
“Homeowners feeling like they are richer in home values does translates to them feeling a bit ‘spendier’ on the consumer side of their expenditures, which will strengthen broader economic recovery,” Humphries said.
Not surprisingly, negative equity is most prevalent in areas that were ravished by foreclosures. The Solano County communities of Vallejo, Fairfield and Suisan City have underwater rates above 47 percent of mortgaged homes.
The Contra Costa towns of Pittsburg, Richmond, Antioch, Hercules and Oakley have rates well above 40 percent. Some Oakland ZIP codes also have high rates.
Even more relevant, in those areas it’s not just that many homes are underwater, it’s that they are deeply underwater, with significant percentages owing more than twice their home’s value. That means homeowners in those areas are unlikely to reach positive equity for many years.
By contrast, in the affluent areas of San Francisco, San Mateo and Marin counties, not only are far fewer homeowners underwater, most are underwater by smaller percentages. That means they have hope that the rising market will lift them into positive equity within a short time frame.
Underwater homes are among the reasons the real estate market has faced a limited supply of inventory.
“You’re still not seeing folks who bought in 2006 selling now because they’re not above water yet,” said Kevin Kieffer of Keller Williams Realty in Danville.
Fewer short sales
As equity continues to rise, more homes should hit the market.
“Our expectation is that a lot of people recently freed from negative equity will start to sell their homes, which will ease inventory constraints,” Humphries said.
The decrease in underwater homes is also borne out in far fewer short sales – homes sold for less than is owed on the mortgage.
“Short sales have dwindled down to hardly anything now,” Kieffer said. “There are only four active (short sale listings) in central (Alameda) county.
“The banks are not pushing hard for short sales the way they once were. I think they’re waiting to ride out this market for the upside. They don’t want to have to go through the expense of a short sale.”
Carolyn Said is a San Francisco Chronicle staff writer. E-mail: firstname.lastname@example.org Twitter: @csaid