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Economy & Business

Home Values Rising, But Homeowners Still A Long Way From Flush

(via Flickr/Images_Of_Money)

So, another week, and yet more news the U.S. housing market is slowly returning to normal.

Numbers released on Tuesday by the Commerce Department show that builders broke ground on homes last month at a seasonally adjusted annual rate of 917,000. That's up from 910,000 in January. And it's the second-fastest pace since June 2008, behind December's rate of 982,000.

Home prices across the country continue to increase as well, and construction of single-family homes has jumped to its strongest level in 4.5 years.

But as values and equity rise, don't expect a return to the good old days of "homes as piggy banks." 

When the housing bubble burst in 2007, the Shaw neighborhood in central St. Louis felt the pop.

As prices dropped, many homeowners ended up under water, and were left with few options but to ride the rollercoaster.

“Once you got into a building like this, you were pretty much stuck with it for a while,” says realtor Matt Kastner with the U.S. Real Estate Society.

This four-family building on Shenandoah Ave. sold for $250,000 in 2007.  A year later Kastner says you couldn’t get $150,000 for it.  But even as values rebound, a home-equity loan is probably the last thing on minds of people living in Shaw.

“A lot of these properties… they’re going to have to, number one, get better appraisals, number two, pay down some of their mortgage before they’re really able to get out from under,” says Kastner. 

“Or, maybe they’re in a good enough position where they just want to get out from under the building and not refinance it or pull cash out, and they just want to sell it.”

According to new data from the analytics firm CoreLogic—national home prices are up 9.7 percent over a year ago, the biggest increase in 7 years.

“A big part of that I think is that the foreclosure inventory that had stacked up for so long has begun to work its way through,” says Richard Sharp , Sr. Vice President of Lending at First National Bank of St. Louis.   

Like a python digesting a goat, Sharp says it just took the housing market a long time to work it’s through such a large number of foreclosures.

And even though the trend is encouraging, most people are still a long way from positive equity.  

“We haven’t seen a lot of that yet,” says Sharp.  “One of the big things I think is that in general the values are picking up, but they’re picking up from depressed levels.  So they’re just getting back in the ballpark of where they were.”

But the real forest among all these trees might actually have very little to do with new equity.

Jed Kolko is an Chief Economist with the real estate company Trulia.  According to their survey of homeowners, only 10 percent of property owners would even consider applying for a home-equity loan.

“People are much more likely to try to get more money out of their house, or get more money to spend on other things through refinancing, than borrowing against their home,” says Kolko.

With interest rates still running at historic lows, Kolko says it would take price increases well above the current rates of 3 percent in St. Louis.

“For us to get back to the days where people used their homes as an ATM, we would have to see much bigger price increases, then we’ve seen so far, and that we’re likely to see this year.”

Kolko says the best indicator he sees for 2013 is that as more people move back into positive equity, that means fewer people who likely to default on their mortgage in the first place, which is good for homeowners, their neighbors and the entire banking system.

Follow Adam Allington on Twitter:  @aallington

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