Sold Your Home for a Loss? You're in Good Company

The destruction on household wealth wrought by the housing crisis has been staggering. Even though we're nearly five years past the actual financial collapse, the real estate website Zillow.com estimates that 25.4% of all homeowners are still underwater on their mortgage. And, mind you, this is a dramatic improvement. At the same time last year, a depressing 31.4% of homes were saddled with negative equity.

For some, the loss may still be on paper -- and, indeed, with any luck, it will never have to be realized so long as home prices continue to recover. But for those of you that are not so fortunate, you can at least seek consolation in the fact that you're not alone. As you can see in the chart below, the percentage of homes sold at a loss has skyrocketed since the middle of 2007. Prior to the crisis, less than 5% of homeowners sold their homes for less than what they paid. Nowadays, more than 30% are in the unenviable position of doing so.

Although it's arguably too little, too late for many people, the good news is that things do appear to be improving. In the first case, as you can see on the right-hand side of the chart, the percentage of homes sold at a loss is coming down. In March of last year, according to the Zillow data, it was 34.97%. This past April, it was 30.7%.

In the second case, we're starting to see green shoots break through the soil on the homebuilders' front. Last month, Toll Brothers (NYSE: TOL  ) , the nation's largest luxury homebuilder, reported a 33% increase in unit deliveries for the three months ended April 30. And yesterday, Hovnanian Enterprises (NYSE: HOV  ) , another major player in the industry, said that its unit deliveries shot up by 18%.

"We believe the industry is still in the early stages of a recovery," noted Robert Toll, executive chairman of Toll Brothers. "[A]s home prices continue to increase, homeowners' balance sheets should continue to improve as should bank balance sheets. People will feel wealthier, banks will lend more and the economy should continue to improve."

And finally, businesses further up the homebuilding supply chain are starting to experience the proceeds of an uptick as well. Two weeks ago, Home Depot (NYSE: HD  ) , the world's largest home improvement retailer, announced a 7.4% year-over-year increase in its first-quarter sales and even felt confident enough to raise its earnings guidance for the remainder of the year. And while Lowe's (NYSE: LOW  ) didn't have as good of a quarter, experiencing a 0.7% decline in same-store sales, it nevertheless managed to increase the bottom line by 2.5%.

At the end of the day, the importance of the housing sector speaks for itself. As my colleague Morgan Housel observed at the end of last year, there "hasn't been a strong economy without a strong housing market in modern history." This is why everyone should be pulling for the line in the chart to reach its historic norm sooner rather than later.

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