About 22 million Americans may lack enough home equity to move, keeping property listings tight and limiting sales as the housing market recovers, Zillow says.
Forty-four per cent of homeowners with mortgages owed more than their properties are worth or had less than 20 per cent equity in the first quarter, the Seattle-based real estate data company said in a report.
Those people are probably locked in to their homes, because listing a house and buying a new one generally requires equity of at least 20 per cent to meet costs such as a down payment and broker fees, Zillow said.
The people who cannot sell are contributing to a dearth of home inventory on the market, which is restraining deals in the key US spring selling season. There were 2.16 million homes available last month, the fewest for any April since 2001, the National Association of Realtors reported. While the low supply is helping to fuel price gains and increase home equity, values have to climb further to ease the shortage, Zillow said.
"Looking at the effective negative-equity rate could explain why recent, healthy declines in the number of underwater borrowers haven't yet translated into more homes for sale," Zillow chief economist Stan Humphries said in the report.
"Things like real estate agents' fees and a down payment for the next home traditionally come out of the proceeds from the prior home's sale. Without enough equity, these costs will instead have to come out of a homeowner's pocket, leaving many still stuck."
More than 13 million homeowners were underwater in the first quarter, equal to about 25.4 per cent of those with a mortgage, down from 13.8 million at the end of last year, Zillow said. Another nine million people had less than 20 per cent equity.
Las Vegas and Atlanta lead major metropolitan areas with the highest rates of so-called effective negative equity.
On a house valued at US$200,000, the owner would have to owe US$160,000 or less to have at least 20 per cent equity.
While some homeowners will keep properties off the market because they have low equity, it doesn't necessarily mean they can't sell. People may be able to use funds from friends, relatives and savings to cover the difference, said Patrick Newport, an economist at IHS Global Insight in Lexington, Massachusetts.
"People could always buy a smaller house or find a few thousand dollars here or there," he said.
Rising values will allow more homeowners to sell. House prices jumped 7.2 per cent in March from a year earlier, capping a 6.7 per cent increase for the quarter, the Federal Housing Finance Agency reported.
Gains were led by the Pacific area, which includes California and Washington, and the Mountain region, including Arizona and Nevada.
About 1.4 million homeowners will regain positive equity by the first quarter of 2014, according to a Zillow projection.