According to the first quarter Zillow Negative Equity Report, 31.4 percent of U.S. homeowners with a mortgage are underwater (see figure 1). This is nearly flat on a quarterly basis, up only 0.3 percent, but down 1 percent since the first quarter of 2011. On average, U.S. homeowners owe $75,644 more than what their house is worth, or 44.5 percent more (see table 1). Almost 5 percent of homeowners with a mortgage in the nation owe more than twice what their house is worth (see figure 2). While a third of homeowners with mortgages is underwater, 90 percent of underwater homeowners are current on their mortgage and continue to make payments.
New to Zillow, the Zillow Negative Equity Report incorporates mortgage data from TransUnion, a global leader in credit and information management, to calculate various statistics. The report includes, but is not limited to, negative equity, loan-to-value ratios, and delinquency rates. To calculate negative equity, the estimated value of a home is matched to all outstanding mortgage debt and lines of credit associated with the home, including home equity lines of credit and home equity loans. All personally identifying information (“PII”) is removed from the data by TransUnion before delivery to Zillow. Overall, this report covers over 800 metros, 2,100 counties, and 22,200 ZIP codes across the nation.
An interactive map of this data can be found here: http://www.zillow.com/visuals/negative-equity/
Regionally, high rates of negative equity have accumulated in states such as California, Florida, Nevada, Arizona, and Georgia – some of the hardest hit areas of the housing recession, where home values have fallen dramatically from peak. As home values fall, negative equity increases. This relation can be observed in figure 3, which shows a scatter plot with the percent of home value lost since the peak on the vertical axis and the percent of negative equity among homeowners with a mortgage on the horizontal axis. The more home values fell, the higher the percent of negative equity.
Of the metros covered by the Zillow Negative Equity Report, 36 out of 812 metros show that more than half of all homes with mortgages in the area are underwater. Among these are larger metros such as Las Vegas (71 percent), Phoenix (55.5 percent), Atlanta (55.2 percent), Orlando (53.9 percent), and Riverside (53.4 percent). See table 1.
While the percent of homes in negative equity is dauntingly high, this percentage only represents a potential danger. The majority of underwater homeowners continue to make regular payments on their mortgage, with only 10.1 percent of the 31.4 percent nationwide being delinquent. Therefore, 3.1 percent of homeowners in the nation are at high risk for foreclosure near-term although there has been an increased utilization by lenders of foreclosure alternatives such as short-sales. In the Las Vegas metro, only 5 percent of homeowners are at high risk of foreclosure in the near term, despite 71 percent of homeowners being underwater. Figure 4 shows a breakdown of these numbers for the top 30 metros.
In terms of historical performance, we saw negative equity decrease in some metropolitan areas while it increased in others. These movements are highly correlated with home value movements. Denver, for example, saw a 7.5 percent decrease in negative equity from a year ago, while Atlanta, Las Vegas, and Sacramento all saw increases in negative equity by more than 3 percent.
Depth of Negative Equity
Nationally, homes are underwater by 31.4 percent. On a metro level, however, there is a wide variation in negative equity with the percent of underwater borrowers ranging from 0 to 84.6 percent. Among the most underwater metros are Las Vegas, Merced and Reno. On the other hand, Bismarck, ND, Midland, TX, and State College, PA remain largely untouched by negative equity.
Across the country, negative equity is at unprecedented levels. In addition to negative equity affecting all parts of the nation, the amount by which people are underwater ranges from 22 percent of the value of their home to more than a hundred percent in metropolitan areas, signifying the severity of the housing recession. Figure 5 provides an overview of distribution of the loan-to-value ratio for the largest metropolitan areas (a loan-to-value ratio greater than 100 percent means that the homeowner is underwater (i.e., their loan is higher than the value of the house). For example, one out of every four homeowners with a mortgage in the Las Vegas metro owes more than twice the amount of their home’s value, since roughly 27 percent of homeowners with a mortgage fall into the 200 plus percent loan to value bucket. In Merced, CA, one out of every five homeowners owes more than twice the amount in their home’s value.
Negative equity remains a major factor in the housing market and one that will cast a long shadow over the recovery. With nearly a third of the nation’s mortgaged homeowners in negative equity and the average underwater homeowner having a home value that is 31 percent lower than their mortgage balance, negative equity will prove both to be difficult to fully eradicate near-term and to have pernicious effects longer term as some households continue to encounter short-term financial trouble even with a slowly improving broader economy. Should economic growth slow, more homeowners will not be able to make timely mortgage payments, thereby increasing delinquency rates and eventually foreclosures. The areas that are most at risk are the areas that have seen the greatest decline in home values and therefore also have the greatest amount of negative equity.
NOTE: This full report can be viewed and downloaded in PDF format here.