At the peak of the real estate downturn more than 12 million borrowers were underwater by owing more on their mortgages than what the homes were worth on the market. By last year that number had fallen by more than 4 million yet still leaving 7 million homeowners underwater.
But thanks to the price recovery in some of the hardest hit markets this number could drop to as low as 4 million in the next two years according to JPMorgan Chase & Co.
Clearly the housing market is in a sustained growth period. With the Federal Reserve buying up bonds in order to keep interest rates low, investors are snatching up homes along with ordinary consumers either entering the market or moving up. According to Bank of America, housing construction alone could boost gross domestic product by 0.4 percentage points while home price appreciation could add another 0.2 percent.
As an example of hard hit housing markets that are recovering, Phoenix is leading the U.S. in price appreciation with a dramatic jump of 22 percent in the 12 months through last October, this according to a S&P/Chase-Shiller index. The index saw its greatest year-over-year increase since May 2010 as eighteen of the twenty cities in the index had increases from a year ago.
According to Zillow, home values rose by more than $1.3 Trillion to $23.7 trillion since the end of 2011. Prices are expected to rise by 3.5 percent this year after increasing 4.5 percent last year, this based on estimates by15 economists surveyed by Bloomberg. Sales of existing homes will increase by 7.2 percent this year rising to 4.98 million units sold. This will be the highest level since 2007.
Interest rates remain at historic lows but are expected to continue a slow rise to around 4.0 to 4.2 percent by years end.