Affordable Homes Three Times More Likely to be Underwater than Expensive Homes
- The U.S. negative equity rate fell to 18.8 percent of all homeowners with a mortgage in Q1 2014, representing 9.7 million Americans. Negative equity is expected to fall to 17 percent by Q1 2015.
- 30.2% of mortgaged homes in bottom price tier are in negative equity, compared to 18.1 percent in middle tier and 10.7 percent in top tier.
- The "effective" negative equity rate, including those homeowners with 20 percent or less equity in their homes, is 36.9 percent.
SEATTLE, May 20, 2014 /PRNewswire/ -- The affordable homes most sought after by first-time homebuyers are being kept off the market in part because nationally, those homes are almost three times more likely to be underwater than the most expensive homes, according to the first quarter Zillow® Negative Equity Reporti. The national negative equity rate fell to 18.8 percent in the first quarter, with almost 9.7 million American homeowners with a mortgage underwater, owing more on their mortgage than their home is worth.
Among all homes with a mortgage nationwide, roughly one in three (30.2 percent) priced within the bottom third of home values were underwater in the first quarter, compared to 18.1 percent of homes in the middle third and 10.7 percent of homes in the top thirdii. It is very difficult for an underwater homeowner to list their home for sale without engaging in a short sale or bringing cash to the closing table, which is a major contributor to inventory shortages across much of the country, even as negative equity slowly recedes.
More than one-third of homeowners with a mortgage (36.9 percent) are effectively underwater, unable to sell their homes for enough profit to comfortably meet expenses related to selling a home and afford a down payment on a new one.
"The unfortunate reality is that housing markets look to be swimming with underwater borrowers for years to come," said Zillow Chief Economist Dr. Stan Humphries. "It's hard to overstate just how much of a drag on the housing market negative equity really is, especially at the lower end of the market, which represents those homes typically most affordable for first-time buyers. Negative equity constrains inventory, which helps drive home values higher, which in turn makes those homes that are available that much less affordable."
Negative equity has fallen for eight consecutive quarters, but fell at its lowest pace in almost two years in the first quarter as home value growth slowed. Negative equity fell from 25.4 percent in the first quarter of 2013 and 19.4 percent in the fourth quarter, while the pace of annual home value growth slowed to 5.7 percent in the first quarter, from 6.6 percent at the end of the fourth quarter. Looking ahead, the national negative equity rate is expected to fall to 17 percent of all homeowners with a mortgage by the first quarter of 2015, according to the Zillow Negative Equity Forecastiii.
At the end of the first quarter, the number of homes foreclosed nationwide fell to 4.9 homes per 10,000, from 5.4 homes per 10,000 at the same time last year. As foreclosure activity continues to fall, the pace of negative equity improvement will also slow, as homeowners' debt is wiped from lenders' books following foreclosure.
| Metropolitan Area |
Q1 2014 Negative Equity Rate |
Q1 2014 "Effective" Negative Equity Rate |
Negative Equity Rate Among all Mortgaged Homes in Bottom Price Tier |
Negative Equity Rate Among all Mortgaged Homes in Middle Price Tier |
Negative Equity Rate Among all Mortgaged Homes in Top Price Tier |
| UNITED STATES |
18.8% |
36.9% |
30.2% |
18.1% |
10.7% |
| New York/ |
15.7% |
29.9% |
28.8% |
12.3% |
5.6% |
| Los Angeles |
11.6% |
24.3% |
19.0% |
8.1% |
4.0% |
| Chicago |
28.1% |
45.0% |
44.8% |
28.2% |
12.9% |
| Dallas-Fort Worth |
13.0% |
38.2% |
21.5% |
12.1% |
7.6% |
| Philadelphia |
20.9% |
39.7% |
36.2% |
21.1% |
9.2% |
| Houston |
9.4% |
26.3% |
12.1% |
9.7% |
6.9% |
| Washington |
20.6% |
39.0% |
36.3% |
18.1% |
7.4% |
| Miami-Fort Lauderdale |
24.9% |
37.5% |
42.5% |
23.6% |
10.2% |
| Atlanta |
33.6% |
53.1% |
60.3% |
32.1% |
14.0% |
| Boston |
11.5% |
28.2% |
21.4% |
7.8% |
4.3% |
| San Francisco |
10.5% |
21.2% |
20.8% |
6.0% |
2.4% |
| Detroit |
26.5% |
40.8% |
54.2% |
28.0% |
10.0% |
| Riverside |
22.9% |
39.2% |
33.0% |
21.8% |
14.2% |
| Phoenix |
22.7% |
39.9% |
34.1% |
21.5% |
13.7% |
| Seattle |
20.9% |
40.1% |
35.7% |
16.7% |
7.2% |
| Minneapolis-St Paul |
19.3% |
40.2% |
32.6% |
17.0% |
10.1% |
| San Diego |
12.6% |
28.1% |
19.9% |
10.2% |
5.2% |
| St. Louis |
22.9% |
44.0% |
41.5% |
22.4% |
11.0% |
| Tampa |
27.1% |
43.2% |
45.7% |
26.4% |
13.1% |
| Baltimore |
22.7% |
42.2% |
37.3% |
22.8% |
10.8% |
| Denver |
10.8% |
32.5% |
19.7% |
8.8% |
6.2% |
| Pittsburgh |
11.2% |
26.6% |
21.1% |
10.3% |
5.6% |
| Portland |
14.9% |
35.4% |
24.2% |
11.7% |
7.0% |
| Sacramento |
20.0% |
37.5% |
29.5% |
17.7% |
10.5% |
| San Antonio |
12.8% |
33.0% |
13.4% |
14.2% |
11.1% |
| Orlando |
28.7% |
45.0% |
44.3% |
28.0% |
16.5% |
| Cincinnati |
21.1% |
43.8% |
37.2% |
19.3% |
11.0% |
| Cleveland |
23.4% |
42.2% |
44.9% |
21.5% |
9.5% |
| Kansas City |
20.7% |
42.4% |
37.9% |
18.8% |
11.7% |
| Las Vegas |
33.9% |
50.6% |
48.2% |
31.8% |
23.0% |
| San Jose |
6.7% |
15.8% |
12.1% |
4.1% |
1.0% |
| Columbus |
21.0% |
44.1% |
40.7% |
19.7% |
8.6% |
| Charlotte |
21.3% |
46.6% |
34.5% |
21.4% |
11.4% |
| Indianapolis |
16.8% |
38.0% |
27.0% |
15.0% |
9.8% |
| Austin |
8.6% |
27.4% |
10.8% |
8.3% |
5.7% |
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).
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 450 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. Zillow also sponsors the bi-annual Zillow Housing Confidence Index (ZHCI) which measures consumer confidence in local housing markets, both currently and over time. The Zillow, Inc. portfolio includes Zillow.com®, Zillow Mobile, Zillow Mortgage Marketplace, Zillow Rentals, Zillow Digs®, Postlets®, Diverse Solutions®, Agentfolio®, Mortech®, HotPads™ and StreetEasy®. The company is headquartered in Seattle.
Zillow.com, Zillow, Postlets, Mortech, Diverse Solutions, StreetEasy, Agentfolio and Digs are registered trademarks of Zillow, Inc. HotPads is a trademark 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, 2,400 counties, and 23,000 ZIP codes across the nation.
ii Homes in each metropolitan region are assigned to the bottom, middle or top tier of homes based on their estimated home value. Each tier contains one-third of the homes in the metro region, and the thresholds defining each tier are computed separately for each metro.
iii The Zillow Negative Equity 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.
SOURCE Zillow, Inc.
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