Negative Equity Still a Drag on the U.S. Housing Market

Despite improvements in the negative equity rate, underwater mortgages are holding back the housing market from full recovery, especially in hard-hit areas.

- The U.S. rate of negative equity among homeowners dropped a full percentage point in the third quarter of 2015, from 14.4 percent last quarter, to 13.4 percent.

- Declining negative equity will allow almost a million newly freed homeowners who have not yet refinanced or have been waiting to sell to do so before mortgage rates rise, which will likely happen in coming weeks.

- Negative equity affects not just the homeowners who are underwater, but entire markets where high rates of negative equity are slowing recovery.

Dec 03, 2015, 08:00 ET from Zillow

SEATTLE, Dec. 3, 2015 /PRNewswire/ -- The U.S. negative equity rate continued to drop in the third quarter of 2015, according to the Zillow® Negative Equity Report.i Nationally, 13.4 percent of homeowners owe more on their mortgage than their home is worth, down from 14.4 percent last quarter, and 16.9 percent a year ago.

Negative equity is one of the most persistent reminders of the housing market crash. Homeowners who owe more on their mortgage than their homes are worth cannot sell, which holds back markets from recovering.

Typically, negative equity rates will be close to 2-5 percent. Today, eight years after the housing crash, it remains a major barrier to a full recovery in certain markets. In Las Vegas, 22 percent of homeowners remain underwater, and another 19 percent are effectively underwater, meaning they have less than 20 percent equity in their home and therefore can't cover the cost of selling their home and buying another.

Las Vegas has had the highest negative equity rate in the country for the past four and a half years, and Kansas City and Cleveland, with 16.6 and 16.8 percent negative equity respectively, are not far behind. San Francisco and San Jose are the only large markets where less than five percent of homeowners are underwater.

Almost a million homeowners were freed from negative equity in the third quarter of 2015. The improving rate means those people may be able to sell or refinance their homes before mortgage interest rates rise, as they are expected to do in the coming weeks.

"Negative equity has become almost an afterthought in a handful of the nation's hottest markets, but is holding back the recovery in dozens of large markets nationwide," said Zillow Chief Economist Dr. Svenja Gudell. "Despite steady declines in negative equity, many cities are still facing tight inventory, especially among entry-level homes. Those homes that are available are often not in demand and stay on the market for a long time. This can be extremely frustrating for buyers and sellers alike, as they come face to face with the difficult side effects of negative equity."

Negative equity affects individual homeowners, but markets with high negative equity rates tend to have fewer homes for sale, especially lower-priced homes favored by first-time homebuyers. In markets with a lot of negative equity, homes generally take longer to sell than in other places.

Below are the top five large metros with the highest and lowest percent of homeowners underwater.

Smallest Share of Underwater Homeowners

  1. San Jose, CA – 3.0 percent
  2. San Francisco, CA – 4.7 percent
  3. Denver, CO – 5.5 percent
  4. Dallas-Fort Worth, TX – 5.8 percent
  5. Portland, OR – 6.2 percent

Largest Share of Underwater Homeowners

  1. Las Vegas, NV – 22.1 percent
  2. Chicago, IL – 20.6 percent
  3. Atlanta, GA – 18.6 percent
  4. St. Louis, MO – 17.6 percent
  5. Baltimore, MD – 16.9 percent

 

Metro Name

Q3 2015 Effective Negative Equity Rate

Q3 2015 Negative Equity Rate

Q3 2014 Negative Equity Rate

United States

30.2%

13.4%

16.9%

New York-Northern New Jersey

24.3%

11.5%

13.6%

Los Angeles-Long Beach-Anaheim, CA

16.6%

7.1%

7.8%

Chicago, IL

37.8%

20.6%

25.3%

Dallas-Fort Worth, TX

18.4%

5.8%

9.3%

Philadelphia, PA

33.8%

15.5%

18.1%

Houston, TX

18.4%

6.2%

7.4%

Washington, DC

34.2%

15.7%

18.4%

Miami-Fort Lauderdale, FL

26.1%

14.7%

20.1%

Atlanta, GA

37.9%

18.6%

27.1%

Boston, MA

18.3%

7.1%

9.6%

San Francisco, CA

11.0%

4.7%

7.3%

Detroit, MI

29.8%

16.6%

22.0%

Riverside, CA

30.7%

14.3%

18.2%

Phoenix, AZ

35.4%

16.4%

21.7%

Seattle, WA

25.7%

10.2%

16.2%

Minneapolis-St Paul, MN

30.8%

11.7%

15.6%

San Diego, CA

21.6%

8.1%

10.1%

St. Louis, MO

37.6%

17.6%

22.7%

Tampa, FL

31.5%

15.7%

22.0%

Baltimore, MD

36.9%

16.9%

20.1%

Denver, CO

15.2%

5.5%

8.2%

Pittsburgh, PA

23.3%

9.8%

10.7%

Portland, OR

20.8%

6.2%

11.2%

Charlotte, NC

32.1%

11.0%

16.5%

Sacramento, CA

27.3%

11.6%

15.7%

San Antonio, TX

31.2%

10.7%

12.2%

Orlando, FL

32.6%

16.1%

21.9%

Cincinnati, OH

35.6%

14.5%

18.7%

Cleveland, OH

34.5%

16.8%

20.7%

Kansas City, MO

38.1%

16.6%

20.7%

Las Vegas, NV

41.3%

22.1%

27.8%

Columbus, OH

31.8%

12.9%

17.6%

Indianapolis, IN

37.2%

15.5%

17.9%

San Jose, CA

7.7%

3.0%

4.5%

Austin, TX

20.3%

6.8%

8.0%

 

About Zillow
Zillow® is the leading real estate and rental marketplace dedicated to empowering consumers with data, inspiration and knowledge around the place they call home, and connecting them with the best local professionals who can help. In addition, Zillow operates an industry-leading economics and analytics bureau led by Zillow's Chief Economist Dr. Svenja Gudell. Dr. Gudell and her 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. Launched in 2006, Zillow is owned and operated by Zillow Group (NASDAQ: Z and ZG), and headquartered in Seattle.

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                                                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.

 

SOURCE Zillow