Negative Equity: 21.5% of Households 'Underwater' in Debt, But Trend Improving

Negative Equity: 21.5% of Households 'Underwater' in Debt, But Trend ImprovingAbout 200,000 more households moved out of negative equity in the fourth quarter of 2012, bringing the total properties that were no longer “underwater” on mortgage debt to 1.7 million in 2012, according to CoreLogic’s latest quarterly update.
That leaves 10.4 million, or 21.5 percent of all residential properties with a mortgage, still in negative equity at the end of the fourth quarter of 2012.
These homeowners owe more on their properties than their market value. Negative equity can occur because of a decline in value, an increase in mortgage debt or a combination of both.
The fourth quarter figure is down from 10.6 million properties, or 22 percent, at the end of the third quarter of 2012 as home prices saw increases throughout the nation.
But much depends on where you live: Nevada had the highest percentage of mortgaged properties in negative equity at 52.4 percent, followed by Florida (40.2 percent), Arizona (34.9 percent), Georgia (33.8 percent) and Michigan (31.9 percent).
These top five states combined account for 32.7 percent of negative equity in the U.S.
Of the largest 25 metropolitan areas, Tampa-St. Petersburg-Clearwater, Fla. had the highest percentage of mortgaged properties in negative equity at 44.1 percent — followed by Miami- Miami Beach-Kendall, Fla. (40.7 percent), Atlanta-Sandy Springs-Marietta, Ga. (38.1 percent), Phoenix-Mesa-Glendale, Ariz. (36.6 percent), and Riverside-San Bernardino- Ontario, Calif. (35.7 percent).
For the fortunate homeowners, the average amount of equity for all properties with a mortgage is 31 percent. The number of mortgaged residential properties with equity is now at 38.1 million.
The national aggregate value of negative equity decreased $42 billion to $628 billion at the end of the fourth quarter, from $670 billion at the end of the third quarter in 2012.
This decrease was driven in large part by an improvement in home prices.
Of the 38.1 million residential properties with positive equity, 11.3 million, or 30 percent, have less than 20 percent equity.
Borrowers with less than 20 percent equity, referred to as “under-equitied,” may have a more difficult time obtaining new financing for their homes because of strict underwriting standards, CoreLogic said.
At the end of the fourth quarter, 2.3 million residential properties had less than 5 percent equity, referred to as near-negative equity.
Properties that are near negative equity are at risk should home prices fall. Under-equitied mortgages accounted for 23.2 percent of all residential properties with a mortgage nationwide in the fourth quarter of 2012. ?
“In the fourth quarter, we again saw an improvement in the equity position of households,” said Dr. Mark Fleming, chief economist for CoreLogic. “Housing market improvements, particularly in the hardest hit states, are the catalyst for households to regain equity and become participants in 2013’s housing market.”
“The scourge of negative equity continues to recede across the country,” said Anand Nallathambi, president and CEO of CoreLogic. “There is certainly more to do, but with fewer borrowers underwater, the fundamentals underpinning the housing market will continue to strengthen,” “The trend toward more homeowners moving back into positive equity territory should continue in 2013.” If you are over 50 though, maybe you should think about equity release.
Here are CoreLogic’s other highlights from the fourth quarter 2012 update:

  • Of the total $628 billion in negative equity, first liens without home equity loans accounted for $313 billion aggregate negative equity, while first liens with home equity loans accounted for $315 billion.
  • 6.5 million upside-down borrowers hold first liens without home equity loans. The average mortgage balance for this group of borrowers is $213,000. The average underwater amount is $45,000.
  • 3.9 million upside-down borrowers hold both first and second liens. The average mortgage balance for this group of borrowers is $296,000.The average underwater amount is $80,000.
  • The bulk of home equity for mortgaged properties is concentrated at the high end of the housing market. For example, 86 percent of homes valued at greater than $200,000 have equity compared with 72 percent of homes valued at less than $200,000.

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