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THE LATEST SERVICING Will Underwater Homeowners Lead to Higher Prices? Industry economists and trade groups weigh in on the impact that distressed homeowners will have on the future of originations. U water homeowners is falling but remains elevated. In total, about 11.4 million homeown- ers were underwater in the first quarter of this year, accord- ing to CoreLogic. This portion of homeowners makes up 23.7 market, but according to Capital Economics, negative equity will not have a major impact on housing prices. Regardless of the impact of negative equity, both Capital Economics and the National Association of Realtors (NAR) foresee rising prices in the near future. The percentage of under- nderwater homeown- ers are contributing to a lower inventory of houses for sale on the percent of residential properties that currently have mortgages. During the previous quarter, ed another 2.3 million homeown- ers have "near-negative equity," or less than 5 percent equity in their homes. Combined with negative equity homeowners, these home- owners make up 28.5 percent of the market, as of the end of the first quarter of this year. On the other hand, NAR about 12.1 million homeown- ers were underwater, about 25.2 percent of the market, according to CoreLogic. Additionally, CoreLogic report- suggests just 15 percent of homeowners are underwater, according to its May Pending Home Sales Index. homes in July 2007, according to NAR, inventory is now at about 2.5 million, or a 6.6-month supply. Inventory "is now at or even Having peaked at 4 million a touch below historical norms," Paul Diggle, property econo- mist at Capital Economics, told MReport. Both NAR and Capital derwater homeowners to sell their homes and move "is also acting, broadly speaking, as an equal and opposite crimp on demand," which leads Capital Economics to conclude "the net effect of negative equity on the house price outlook is probably fairly muted." Regardless, Diggle "anticipate[s] However, the reluctance of un- ers who are in negative equity to sell their homes and realize a loss is one explanation for the sharp fall in the visible inventory over the past few years," Capital Economics stated in a recent press statement. Economics suggest this decline in inventory can be attributed to negative equity. "The reluctance of homeown- person for NAR told MReport that recent declines in unem- ployment will bring buyers off the sidelines as they gain the ability to purchase homes and become more confident in their personal economic situations. Regardless, both Capital recent improvements in demand continuing into the second half of this year and into 2013," largely due to investor interest. On the other hand, a spokes- Economics and NAR anticipate rising prices this year and next. Diggle suggests prices will in- crease by 2 percent this year and by up to 5 percent in 2013. NAR's estimates are a little higher. The trade group expects a 3 percent rise this year and a 5.7 percent rise in 2013. THE M REPORT | 53 ORIGINATION SERVICING ANALYTICS SECONDARY MARKET