The good news is, the Fed’s money printing has generated enough growth in real estate prices that during the third quarter 800,000 homes regained positive equity. That means, the home’s market value grew larger than its mortgage. But that still leaves 6.4 million households underwater. And of those homes whose values are above their mortgage balance, nearly 10 million are what’s known as “under equitied,” better understood as having less than 20% equity value.
The housing market is coming back to be sure, but those artificial gains are at risk. You see, the Fed has added trillions in mortgage backed securities to its balance sheet to just get a little improvement in the housing market. Once it starts pulling, who knows what the consequences could be?
As you can see in the map below, the mortgages with the worst equity positions are generally located in the housing boom’s most notorious states; Florida, Nevada and Arizona. Ohio and Georgia join them to form the top five states with the worst equity positions. The five states with the best equity positions are Alaska, Texas, Montana, North Dakota, and Wyoming.
The risk is that the Fed will begin tapering and that all the artificial price increases it has generated in the housing market will have the rug pulled out from under them. Whatever demand has been pulled forward by the easy-money flow will be given back when it’s cutoff.