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Fewer foreclosures, first-time homebuyers critical to housing market success

Posted on Tuesday, June 24, 2014 at 2:05:14 PM

First-time homebuyers are a driving force behind the housing market. Without this segment, the nation's economy could suffer. However, these buyers are encountering problems with mortgage payments, according to a recent Zillow study. In fact, the most affordable homes are the ones more likely to end up underwater.

In the Zillow report, findings indicated that slightly more than 30 percent of homes in the lower tier of property values were underwater during the first quarter of 2014. In the top third of home values, those houses were only underwater 10.7 percent of the time. As a result of these trends, many homeowners with residential financing issues are having difficulties selling, restricting inventory levels in some parts of the country.

"The unfortunate reality is that housing markets look to be swimming with underwater borrowers for years to come," said Zillow chief economist Stan Humphries. "It's hard to overstate just how much of a drag on the housing market negative equity really is, especially at the lower end of the market, which represents those homes typically most affordable for first-time buyers. Negative equity constrains inventory, which helps drive home values higher, which in turn makes those homes that are available that much less affordable." 

Foreclosure inventory ticks down
On a positive note for homeowners with residential financing payments, a recent report on the U.S. housing market found that the number of foreclosures is on the way down.

According to Black Knight Financial Services, foreclosure inventory is the lowest it has been since the summer of 2008. On a monthly basis, the pre-sale inventory rate decreased roughly 5.5 percent. On the other hand, the number of foreclosure starts increased, up 9.5 percent month-over-month and 26 percent higher year-over-year.

Overall, these trends signal positive conditions ahead for both homebuyers and sellers. More foreclosures are moving through the process and fewer buyers are ending up underwater. Ideally, a greater inventory of affordable properties will become available across the country.