NWA home values on the rise, some mortgages still ‘underwater’

The biggest investment most families make is their home, but the past few years it’s been painful to look at neighboring home sales prices, especially for homeowners who purchased in the past decade. And that’s true even in the strong economy of Northwest Arkansas.

RealtyTrac estimates that 9.1 million U.S. homeowners are still underwater, which means they owe substantially more than their home is worth. Their loan-to-value ratio is 125%, according to Irvine, Calif.-based real estate tracking firm. Underwater properties are down from 9.9 million a year ago

The first quarter negative equity numbers were down to the lowest level since RealtyTrac began reporting negative equity in the first quarter of 2012. 

“U.S. homeowners are continuing to recover equity lost during the Great Recession, but the pace of that recovering equity slowed in the first quarter, corresponding to slowing home price appreciation,” Daren Blomquist, vice president at RealtyTrac, said in the statement. “Slower price appreciation means the 9 million homeowners seriously underwater could still have a long road back to positive equity.

Tom Reed, owner of Reed & Associate real estate appraisal firm in Fayetteville, said Northwest Arkansas’ residential market has been on the upswing since early 2012. The upward trend came after a deep 35% average price decline between the market peak at the end of 2005 and the bottom of the trough reached in mid-2010, Reed said.

RealtyTrac reports 8,445 homeowners in Benton County – one in five of all homeowners – are upside down on their mortgages, with the value of the property 25% less than what is owed against it.

One in four Benton County homeowners is recovering equity lost during the bust. Another 14% have positive equity with loan-to-value ratios at 50% or lower. That means that their homes appraise at twice what is owed.

In Washington County, 19% of homeowners are underwater on their loans. This is nearly dead even with numbers in neighboring Benton County and a little higher than the 14% reported at the state level. One in four Washington County homeowners are seeing their equity recover and 11% are in strong equity positions with their homes valued at twice what is owed.

Reed said local home prices have been recovering since early 2012. He attributed that upward price movement to the lower overall inventory of unsold homes. He said there is a lot of new home building underway and subdivision expansion in areas where lots have become scarce and there is ample demand for new homes.

“These land prices in new subdivision phases come at a higher cost to the builder today and that is driving up the cost for new construction. In the past few years the new home market was in direct competition with the existing home market because there were so many discounted lots on the market. Those lots in the most desirable areas have been absorbed,” Reed said.

He said the higher new home prices are also lifting existing home values and he expects that to continue this year and next. The only caveats being that the local economy continues to keep the pace it’s on and new building does not outpace demand.

“I see the local property values continuing to rise at a normal range whether that’s 3% or 5%, I don’t know, but it’s not the unsustainable double digit increases that occurred ahead of the market peak,” Reed said.