Rising home prices lift L.A.-area homeowners from negative equity

A house on sale last month in Watts for $280,000.
(Bob Chamberlin / Los Angeles Times)

Sharply higher home prices might be spooking first-time home buyers, but the swift increases earlier this year have been welcomed by those that bought before the market crashed.

More than 215,000 homeowners in Los Angeles and Orange counties escaped their negative equity positions in the last year, meaning they no longer owe more on their mortgage than their house is worth.

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At the end of the third quarter, 13.2% of homeowners with a mortgage remained underwater in the L.A. metro region, a decline from 25.9% in the same period last year, according to real estate firm Zillow, which released the data Thursday.

Getting out of a so-called underwater mortgage boosts confidence among those homeowners and enables them to build equity. It also frees them to sell and possibly become move-up buyers -- a important link in the chain of a healthy housing market.

“We should feel good that we’re moving in the right direction and at a fast clip,” Zillow chief economist Stan Humphries said in a statement.

The Los Angeles region saw home prices skyrocket this year as families and investors flooded the marketplace, looking to take advantage of historically low mortgage rates and still-cheap property. The market has cooled since the spring, in part because of declining affordability. The median home price in the six-county Southland was nearly 22% higher in October than the same month last year, according to research firm DataQuick.

That’s enabling many to get closer to the moment they can come up for air. In Los Angeles and Orange counties, 43.2% of underwater homeowners owe 1% to 20% more than their house is worth.

Prices, however, are still below their peak during the last decade’s bubble.

Those that purchased a home at what turned out to be unsustainable prices remain stuck. About 10% of underwater homeowners in the L.A. area owe more than double what their house is worth, Zillow said.

The the Inland Empire — an epicenter of the housing boom and bust — has the greatest percentage of homeowners underwater in Southern California. In Riverside County, 27% of homeowners with a mortgage are still underwater. In San Bernardino County that rate rises to 29.1%.

“Many homeowners remain too far underwater for reasonable price appreciation alone to help,” Humphries said.

Negative equity, he said, is simply the new normal.


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