With the percentage of U.S. homes considered "underwater" falling, spending could increase and more homeowners could feel more confident taking out loans, The Wall Street Journal reported Tuesday.
A recent CoreLogic report said there were 1.7 million fewer homes considered underwater in the fourth quarter of 2012 than there were in the same period in 2011. The percentage of homes worth less than what was owed on their mortgages -- the definition of underwater -- fell from 25.2 percent at the end of 2011 to 21.5 percent a year later, the report said.
"Home equity is the biggest source of wealth, so if equity is increasing that has a very large effect on household spending and consumer psychology," CoreLogic economist Sam Khater said.
Increased confidence among homeowners can also have a direct effect on the housing market, making it easier for people to move to better jobs if the chance to do so comes up.
When a home is worth less than what is owned to the bank homeowners tend to hold on, waiting for a point where they could at least break even before putting a home on the market.
More homes on the market means it is easier to move. It also means more commission checks for real estate agents.
"All the things that fed on the downside feed positively on the upside," said Joseph LaVorgna, chief U.S. economist for Deutsche Bank.