2014

13 Million U.S. Homeowners Still Underwater in Q1, But More Than 9 Million More May Lack Enough Equity to Move Homeowners With "Effective" Negative Equity Likely Can't Afford Down Payment on Next Home, Contributing to Inventory Shortages, According to First Quarter Zillow Negative Equity Report

SEATTLE, May 23, 2013 /PRNewswire/ -- The national negative equity rate fell in the first quarter, to 25.4 percent of all homeowners with a mortgage, according to the first quarter Zillow® Negative Equity Report[i]. But another 18.2 percent of homeowners with mortgages, while not technically underwater, likely do not have enough equity to afford to move.

Slightly more than 13 million homeowners with a mortgage were in negative equity, or underwater, at the end of the first quarter, owing more on their mortgage than their home is worth. But when including homeowners with less than 20 percent home equity, the "effective" negative equity rate at the end of the first quarter was 43.6 percent, or a total of 22.3 million homeowners. These homeowners likely cannot afford a down payment for a new home, tying them to their current homes and contributing to inventory shortages.

A homeowner technically reaches positive equity as soon as the market value of their home exceeds their outstanding loan balance. But listing a home for sale and buying a new one generally requires equity of 20 percent or more to comfortably meet related costs.

"Reaching positive equity, even barely, is an important milestone. But things like real estate agents' fees and a down payment for the next home traditionally come out of the proceeds from the prior home's sale. Without enough equity, these costs will instead have to come out of a homeowner's pocket, leaving many still stuck," said Zillow Chief Economist Dr. Stan Humphries. "Looking at the effective negative equity rate could explain why recent, healthy declines in the number of underwater borrowers haven't yet translated into more homes for sale. The only cure is patience, as rising home values continue to build equity to the point where more homeowners can realistically sell."

Among the 30 largest metro areas covered by Zillow, those with the highest effective negative equity rate, including homeowners with 20 percent equity or less, include Las Vegas (71.5 percent); Atlanta (64.1 percent); and Riverside, Calif. (59.7 percent).

The first quarter Zillow Negative Equity Forecast[ii] predicts the negative equity rate among all homeowners with a mortgage will fall to 23.5 percent by the first quarter of 2014, lifting more than 1.4 million additional homeowners nationwide into positive equity. Of the 30 largest metro areas, the majority of these newly freed homeowners are anticipated to come from: Los Angeles (94,642 homeowners); Riverside (74,693 homeowners); and Phoenix (51,580 homeowners).

These results are from the first quarter edition of the Zillow Negative Equity Report, which looks at current outstanding loan amounts for individual owner-occupied homes and compares them to those homes' current estimated values. Loan data is provided by TransUnion®, a global leader in credit and information management. This is the only report that uses current outstanding loan balances on all mortgages when calculating negative equity. Other reports estimate current outstanding loan balance based on the most recent loan on a property (i.e., the original loan amount at time of purchase or refinance).

Metropolitan Area

Q1 2013: % of Homeowners w/Mortgages in Negative Equity

Q1 2013: "Effective" Negative Equity Rate, Including Homeowners w/ 20% or Less Equity

Q1 2014: Forecasted Negative Equity Rate

Minimum # of Homeowners Expected to be Freed from Negative Equity by Q1 2014[iii]

 UNITED STATES

25.4%

43.6%

23.5%

1,494,051

New York

19.0%

33.4%

19.7%

N/A

Los Angeles

21.3%

36.8%

15.7%

94,642

Chicago

36.1%

51.6%

37.2%

N/A

Dallas-Fort Worth

20.4%

46.7%

17.1%

35,268

Philadelphia

22.7%

40.9%

22.5%

1,908

Washington

26.6%

44.5%

25.8%

9,463

Miami-Fort Lauderdale

37.0%

50.0%

34.5%

24,046

Atlanta

47.6%

64.1%

46.2%

14,343

Boston

15.9%

33.9%

15.4%

3,619

San Francisco

20.9%

34.7%

16.2%

32,302

Detroit

40.1%

53.7%

37.4%

23,026

Riverside

39.7%

59.7%

28.6%

74,693

Phoenix

35.9%

53.0%

29.2%

51,580

Seattle

31.2%

48.9%

25.4%

38,280

Minneapolis-St. Paul

30.3%

49.8%

27.2%

21,575

San Diego

24.7%

43.5%

19.0%

26,430

Tampa

39.3%

53.4%

36.9%

12,550

St. Louis

26.4%

47.1%

26.7%

N/A

Baltimore

27.1%

45.0%

27.0%

976

Denver

16.9%

41.5%

14.6%

12,029

Pittsburgh

13.2%

28.8%

12.7%

2,076

Portland

25.5%

45.2%

22.2%

14,007

Sacramento

37.5%

55.8%

26.8%

40,001

Orlando

41.8%

57.1%

38.2%

13,448

Cincinnati

26.1%

48.7%

24.9%

5,118

Cleveland

28.1%

46.6%

27.4%

2,860

Las Vegas

54.3%

71.5%

48.6%

19,262

San Jose

13.5%

26.0%

10.0%

9,774

Columbus

28.4%

51.2%

27.0%

4,863

Charlotte

31.5%

54.4%

32.2%

N/A

About Zillow:
Zillow, Inc. (NASDAQ: Z) operates the largest home-related marketplaces on mobile and the Web, with a complementary portfolio of brands and products that help people find vital information about homes, and connect with the best local professionals. In addition, Zillow operates an industry-leading economics and analytics bureau led by Zillow's Chief Economist Dr. Stan Humphries. Dr. Humphries and his team of economists and data analysts produce extensive housing data and research covering more than 350 markets at Zillow Real Estate Research. Zillow also sponsors the quarterly Zillow Home Price Expectations Survey, which asks more than 100 leading economists, real estate experts and investment and market strategists to predict the path of the Zillow Home Value Index over the next five years. The Zillow, Inc. portfolio includes Zillow.com®, Zillow Mobile, Zillow Mortgage MarketplaceZillow Rentals, Zillow Digs™, Postlets®, Diverse Solutions®, Buyfolio™, Mortech™ and HotPads™. The company is headquartered in Seattle.

Zillow.com, Zillow, Postlets and Diverse Solutions are registered trademarks of Zillow, Inc. Buyfolio, Mortech, HotPads and Digs are trademarks of Zillow, Inc.

TransUnion is a registered trademark of Trans Union LLC.

[i] The data in 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 more than 870 metros, 2,500 counties, and 24,000 ZIP codes across the nation.
[ii] The Zillow Home Value Forecast is a conservative estimate of what negative equity rates will be a year from now. To forecast negative equity, we take the current home value of a house and appreciate it by the Zillow Home Value Forecast (ZHVF) for the MSA in which the home is located. In cases where there is no ZHVF available, we use the historical rate of home appreciation, and for metros that don't have a historical rate of appreciation we use the historical rate of inflation at the national level. For homes that are not located in a metropolitan area, we use the forecasted national rate of appreciation. To calculate the level of home equity a year from now, we use the forecasted home value and the current outstanding debt balance, where we make no assumptions about a homeowner's debt level a year from now. We also make no assumptions about foreclosure activity in the coming year. Therefore, this forecast is a very conservative one, as homeowners will likely continue to pay down their debt throughout the year and homes will likely continue to be foreclosed on, and both of these factors will contribute to a lower negative equity rate. The Zillow Negative Equity Forecast can therefore be considered a higher bound estimate of negative equity.
[iii] Some metro areas may be marked "N/A" in this column. Home values are expected to continue to fall in these metros, which will lead to a net increase in the number of homeowners with a mortgage who are in negative equity. While some homeowners in this metro will be freed from negative equity, we expect more homeowners to enter negative equity in the coming year when looking strictly at home value changes and not considering pay downs in mortgage principal or foreclosure activity.

SOURCE Zillow, Inc.



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