This is an archived article that was published on sltrib.com in 2013, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.
Rising real estate prices in Utah are pulling thousands of seriously underwater home mortgages back to the surface, but the number of troubled loans is still high by historical standards. That may help explain why Utah is again among the Top 10 states in its rates of foreclosure filings.
Utah's rate of foreclosure filings was eighth in the nation at 1 in every 697 housing units in August, compared to No. 1 Nevada's rate of 1 in every 359 units. In June, Utah was ranked 16th nationally with 1 of 194 housing units seeing a foreclosure filing. Utah had a rate of 1 in every 824 housing in July, the 10th highest in the nation.
"Our northern Utah market areas are displaying robust growth in rising unit sales and average sales prices," Steve Roney, CEO of Prudential Utah Real Estate, told RealtyTrac, the real estate data company that gathers the statistics. "However, Salt Lake and Weber counties are showing a significant increase in default filings by lenders, indicating an increased willingness to foreclose on properties in a rising market."
Overall the U.S. foreclosure rate for August was down 44 percent from a year ago, and down 2 percent from July. Nationally, one in every 1,019 housing units had a foreclosure filing. There were exceptions, notably Nevada, which had a 226 percent increase over July.
At the beginning of September, 88,051 homeowners owed at least 25 percent more on their mortgages than their properties were worth, according to RealtyTrac. A year ago the number was 103,148.
The latest number of deeply submerged loans is 16 percent of all mortgaged homes in the state, down from 23 percent in September 2012, the market research firm said.
Real estate experts say rising property values are behind the improvement. In Salt Lake County, the median price of a home sold in the second quarter soared 17 percent from the same quarter of 2012. Other Wasatch Front counties tracked by the board saw second-quarter prices increases ranging from 7.6 percent in Davis County to 14 percent in Tooele County.
Even so, the number of underwater loans is too high and is acting as a drag on the economy, said Jim Wood, director of the University of Utah's Bureau of Business and Economic Research. Homeowners can't sell their homes unless they are willing to shoulder a loss. That means they can't move up. It could also prevent them from taking a better job somewhere else. And it's harder for buyers to find suitable homes because the inventory of houses for sale is lower than it should be.
"It hurts demand for housing. It just cuts into the demand for houses. These people are locked in until [their loans] become positive. It really hurts mobility," Wood said.
The reason so many mortgages are upside down is the recession. People who bought houses in the years running up to the start of the recession in December 2007 bought at the top of the market. Many buyers got into homes with little or no down payment. Then, beginning in the second quarter of 2008, prices began to fall. They didn't stop falling until the start of the second quarter of 2012. Those four long years generated tens of thousands of underwater loans.
"It's really a reflection of this exceptional period where we had very easy terms and very small down payments. So [homeowners who bought between 2004 and early 2008] had really no equity when housing prices dropped 25 percent," Wood said.
That's one reason why foreclosure rates in the Salt Lake City metro area remain high. In August, 1,014 properties were in some stage of foreclosure, according to RealtyTrac. One out of every 401 housing units was in foreclosure, a rate that is 11th-worst of all U.S. metros.
In normal times, virtually all mortgages should be smaller than the market value of the property. So although the number of underwater mortgages is down sharply from last year, many homeowners are still trapped, keeping them on the sidelines.
Still there is improvement. Thanks to the price rises over the last year, almost 15,100 Utah homeowners who were seriously underwater in 2012 are breathing easier today. More than 130,600 homeowners are now either slightly underwater or slightly above, putting them on track to have enough equity to sell without having to resort to a short sale that yields less than the balance of the mortgage.
"Negative equity certainly impacts a homeowner's decision to sell, and we expect sellers to come off the fence as equity is gained back," said Steve Roney, CEO of Prudential Utah Real Estate in Park City.
"This will provide additional momentum to the recovery as inventories [of homes for sale] rise and buyers have more options," Roney said.
Nationally, 23 percent of home mortgages are seriously underwater. Nevada is in the worst shape, with 46 of its mortgage holders owing more than their homes are worth.
Top 10 states in the rate of foreclosure filings in August.
10. South Carolina