16 percent of Charlotte-area homeowners are underwater, report says

Two reports on the housing market released this week show how foreclosures and falling home prices continue to plague the industry. Yet, a third report says that because of recent promising data, that “hopes have been raised that the long-awaited recovery in housing is finally underway.”

In the Charlotte area,16 percent of residential properties that had a mortgage were under water in the fourth quarter of 2011, according to CoreLogic, a real estate research firm. That translates to roughly 61,000 area homes being worth less than their outstanding loan amounts, up from 58,800 properties at the end of the third quarter 2011. 

An additional 34,000 properties were in what CoreLogic calls “near negative equity,” or where borrowers had less than 5 percent equity in their home.

“The high level of negative equity and the inability to pay is the “double trigger” of default, and the reason we have such a significant foreclosure pipeline,” said Mark Fleming, CoreLogic chief economist. “...Negative equity will take an extended time to improve, and if there is a hiccup in the economic recovery, it could mean a rise in foreclosures.”

Nationally, nearly 23 percent of residential properties with a mortgage - or more than 11 million homes - were underwater at the end of the fourth quarter last year, up from 22.1 percent in the previous quarter.

Nevada had the highest number of underwater homes - with 61 percent of mortgaged properties being worth less than their outstanding loans.  

Foreclosure sales, meanwhile, accounted for a quarter of all U.S. home sales during the fourth quarter, up from 20 percent in the third quarter but down slightly from fourth quarter 2010. according to RealtyTrac, another real estate research company.  

The pipeline of distressed homes has grown sharply. More homeowners are seriously delinquent and lenders are taking longer to foreclose as they work through paperwork problems.  

RealtyTrac expects foreclosure sales to grow next year, “as lenders start to more aggressively dispose of distressed assets help up by the mortgage servicing gridlock over the past 18 months,” said RealtyTrac chief executive Brandon Moore. Moore also expects to see a sharp increase in short sales, where a lender accepts less than is owned on the loan.

On a more positive note, U.S. housing data reported during the fall and winter came in slightly better than economists had expected, raising hopes that the long-awaited recovery in housing may finally be underway, according to the researchers at Wells Fargo Securities.

Sales and new home construction increased modestly in 2011 and prices for non-distressed property sales have stabilized in many markets, the authors write.

But, the report also says, the improvements may appear rosier than reality because of the area’s unusually mild winter weather.

November, December and January typically account for the smallest percentage of new home sales each year. But if the weather is unseasonably mild, as it has been this year in Charlotte, a slight uptick in home buying can result in statistically large increases in activity. 

This appears to be what has happened during the past three months, the authors say, as the seasonally adjusted data for new home sales rose 3.2 percent since October, while the not-seasonally adjusted data fell .1 percent.

Overall, “the housing recovery probably looks relatively tame,” the report says. “There are still a multitude of issues that need to be resolved before a sustained self-reinforcing recovery can unfold.”