Negative equity — or the rate of homeowners who owe more on their mortgage than their homes are worth — has stalled after diminishing in most communities since the peak of the Great Recession.
And in some places, “underwater” mortgage holders are deeper into the negative for the first time since the recession, according to a new report from Zillow.
Even as home values overall continue to rise, negative equity is going up in 21 of the largest 50 housing markets, an indication that many underwater homes are not rising in value, Zillow found.
More than a quarter of mortgaged homes are underwater in some markets in Florida and the Midwest. The national negative equity rate is 16.9 percent.
And while home values jumped 5.9 percent nationally last year, it’s low-end homes that are far more likely to be worth less than the balance of their mortgages. That’s because low-end homes – the most likely to be upside-down — are losing value.
At the peak of the real estate crisis, more than 15 million homeowners owed more on their mortgages than their homes were worth, putting them in negative equity.
Foreclosures, short sales and rapidly rising home values “freed nearly half of those homeowners, but now that trend has reversed in many metros,” Zillow says.
“Higher negative equity rates have become the new normal,” said Zillow Chief Economist Dr. Stan Humphries. “We’ve long been expecting the negative equity rate to fall more slowly as home value growth also slows, and unfortunately that’s exactly what we’re seeing.”
Compounding the problem, he added, negative equity “looms larger over the bottom 10 percent of homes, where homeowners are least prepared to withstand the assault.”
Less valuable homes are much more likely to be underwater. For example, in Atlanta, 49 percent of homes in the bottom-third of home values are in negative equity, compared to 11 percent of mortgaged homes in the highest valued third.
Nationally, 16.9 percent of all homes with a mortgage are in negative equity, and that figure is expected to fall to 15.4 percent by the end of 2015.
Among large metro areas, Virginia Beach (28.3 percent), Jacksonville (27.0 percent), Las Vegas (26.4 percent), and Atlanta (26.1 percent) had the highest rates of negative equity.