Breathing Room: Housing's Least Underwater Areas - Spokane, North Idaho News & Weather KHQ.com

Breathing Room: Housing's Least Underwater Areas

MSNBC.COM - Want happy neighbors? Go where there's home equity. Places like Pittsburgh, Yakima, Wash., and Hartford, Conn. — smaller metros where homeowners are the least "underwater" on their mortgages.

Call it "treading water."

Back in the day, sunny cities in Florida, casual coastal communities in California, desert hot spots like Phoenix and Las Vegas, and creative class towns in the Pacific Northwest were all the real estate rage. Because of the "underwater" phenomenon, not any more. Underwater status is defined as a homeowner owing more on their mortgage than their home could sell for on the current market.

"It's definitely an important indicator of how well a market is doing," says Stan Humphries, chief economist at Zillow.com, the Seattle-based real estate data site. "Underwater status can spur foreclosures and strategic defaults. It also suppresses housing demand because current owners can't sell and are trapped."

According to Zillow.com, 21.5 percent of the nation's single-family homes with a mortgage were underwater at the end of second quarter 2010, down from a peak of over 23 percent a year earlier. (Zillow.com estimates 60 percent of all U.S. homes are mortgaged, with the rest owned outright). The two major factors that contribute to being underwater are home value declines and the size of a home buyer's down payment, Humphries notes. A larger down payment combined with smaller price decline in some markets can prevent a homeowner from going underwater. Of course in the case of disastrous markets like Phoenix down payment wouldn't matter much.

Another measure impacting a local market's underwater status is a market's "transactional velocity" — or the rate of transactions per year. Even in markets that have seen major home price declines like Detroit, Humphries says, a slower-moving market where fewer properties change hand each year may indicate that owners have more history — and thus, more equity—in their homes, and thus may have a higher likelihood of escaping an underwater situation.

These ten communities all have less than 8.4 percent underwater status among single-family homes. While several have seen home values tumble precipitously from recent-year peaks — Boston (down 16.8 percent), Cape Cod (down 22.7 percent), and Springfield, Mass (down 12 percent) — all ten of these markets have shown annualized growth over the past decade.

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