While existing home sales are up nearly 5 percent from last year, economists say activity would likely be more brisk if it weren’t for the negative equity overhang that has lately worsened in many markets.
Completed sales on existing homes rose 4.7 percent in February compared with a year ago, reaching an annual rate of 4.88 million, according to the National Association of Realtors, a 1.2 percent increase over January. But Mark Fleming, the chief economist at First American Financial Corporation, a national provider of title insurance and settlement services, says his research tells him that home sales ought to be even higher. The labor market has improved considerably. And home prices are higher, which, though it may sound counterintuitive, have historically correlated with rising home sales, he said.
Zillow’s 2014 fourth-quarter negative equity report even shows rising negative equity levels in 21 of the top 50 housing markets, compared with the third quarter. The reason is that the bottom 10 percent of homes in these markets, where negative equity is highly concentrated, are declining in value, Mr. Humphries said.
Homeowners in the bottom one-third of housing stock by price are three times as likely to be underwater than homeowners in the top third, Mr. Humphries said. What’s more, the Zillow report found, they are also far more likely to be deeply underwater, or owing at least twice what their home is worth.
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