In the first nine months of 2012, 1.4 million homeowners who had been underwater on their mortgage, or owed more than their home is worth, were moved into positive equity, according to data from CoreLogic.
The tight supply of available homes for sale has created a sellers’ market, with many properties drawing multiple offers. That means even bank-owned homes and those in some stage of foreclosure, which typically sell at a discount to other homes, are going for higher prices.
That has given banks further incentive to let homeowners who have fallen behind on their payments avoid foreclosure by authorizing a short sale, when a lender agrees to accept less for a home than what the seller owes on their mortgage.
Last year, sales of homes in some stage of foreclosure rose 6 percent from a year earlier, while sales of bank-owned homes fell 15 percent, according to RealtyTrac.
Meanwhile, states like California, Nevada and Washington have passed laws to increase homeowners’ protections from foreclosure. Those laws have effectively delayed the pace of homes entering the foreclosure process, which has helped to thin the pipeline of completed foreclosures in those states.
The combination of fewer foreclosed homes hitting the market and higher prices for those that do sell is good news for homeowners because those properties will be less of a drag on the value of nearby homes.
“They’ll have less of a negative impact just because there are fewer selling,” Blomquist said.