The rising prices of homes in America are rescuing a number of underwater homeowners from their debts. New home buyers are now able to sell off their old homes at a greater price to fund their mortgage loans, enabling them to cover the loan more effectively.
Underwater home owners are those buyers who owe more on their mortgage than the home's worth (negative equity). The rebounding market, low mortgage rates and increasing prices have dragged a number of underwater homeowners to rise above their debt, reports Wall Street Journal.
According to a report analyzed by Zillow, it was revealed that almost 2 million Americans were freed of negative equity in 2012. The percentage of underwater home owners went down to 27.5 percent at the end of the fourth quarter of 2012.
Among the country's 30 largest metropolitan areas, Phoenix recorded the highest number of freed home owners. Around 135,099 home owners were pushed to rise above the debt in the city. Los Angeles, Miami-Fort Lauderdale and Dallas- Fort Worth ranked consequently with 72936, 70484 and 59461 home owners freed from negative equity, respectively.
However, 13.8 million home owners are still underwater. Despite recording the highest number of freed home owners, Phoenix still has around 30,000 home owners under water.
Zillow also predicted that around 25.5 percent of the still-underwater homeowners will be freed of negative equity by the end of the fourth quarter of 2013. Los Angeles will see the highest number of freed home owners by the stipulated time while Riverside, Phoenix and Sacramento are expected to follow suit.
Other than the rising prices, foreclosures and short sales can also buoy the home owners from going underwater. However, with foreclosure rates dropping, the rising home prices seem to be the only prospective option. Supply of homes has also taken a blow due to reduced foreclosures, reports Business Insider.
"As home values continue to rise and more homeowners are pulled out of negative equity in 2013, the positive effects on the housing market will be numerous. Freed from negative equity, homeowners will have more flexibility, and some will likely choose to list their home for sale, helping to ease inventory constraints and moderating sometimes dramatic, demand-driven price increases in some markets." Dr. Stan Humphries, Chief economist at Zillow said in the report.