Negative Equity Still Hasn't Fallen Enough to Stimulate Housing Turnover

U.S. homeowners continue to regainrnthe equity in their homes which was lost in massive amounts during the housingrncrisis that began in 2007 and 2008.  According to data released today by CoreLogic,rnmore than 300,000 homes returned to a positive equity position in the firstrnquarter of this year.  This leaves approximatelyrn6.3 million homes nationwide still “underwater” while more than 43 millionrnmortgaged homes have some degree of equity. rn</p

Properties in negative equity represented<b12.7 percent of homes with a mortgage at the end of the first quarter.  At the end of the fourth quarter of 2013rnwhere were 6.6 million or 13.4 percent of homes with a mortgage balance thatrnexceeded the market value of the property and at the end of Q1 2013 there werern9.8 million homes or a 20.2 percent negative equity share.  </p

“Prices continue to rise acrossrnmost of the country and significantly fewer borrowers are underwater todayrncompared to last year,” said Anand Nallathambi, president and CEO ofrnCoreLogic. “An additional rise in home prices of 5 percent, which we arernprojecting will occur over the next 12 months, will lift another 1.2 millionrnproperties out of the negative equity trap.”</p

Nationally the aggregate negativernequity totaled $383.7 billion at the end of Q1 2014.  This was a decrease of $16.9 billion fromrnapproximately $400 billion in the fourth quarter 2013.  </p

Inrnaddition to homes that are considered underwater, approximately 10 million morernhave less than 20 percent equity, more than 20.6 percent of all mortgage homes.  These properties are considered by CoreLogicrnto be “under equitied” and their owners could have a difficult time refinancingrnor obtaining new financing a new home should they sell.  More than 1.5 million of these under equitiedrnhomes have less than 5 percent equity and could sink back underwater shouldrnhome prices fall.</p

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“Despite the massivernimprovement in prices and reduction in negative equity over the last few years,rnmany borrowers still lack sufficient equity to move and purchase a home,”rnsaid Sam Khater, deputy chief economist for CoreLogic. “One in fivernborrowers have less than 10 percent equity in their property, which is notrnenough to cover the down payment and additional costs associated with arnconventional mortgage.”</p

The bulk of home equity for mortgagedrnproperties is concentrated at the high end of the housing market. For example,rn93 percent of homes valued at greater than $200,000 have equity compared withrn82 percent of homes valued at less than $200,000.</p

Nevada continues to have the highestrnshare of negative equity properties (29.4 percent) followed by Florida (26.9rnpercent), Mississippi (20.1 percent), Arizona (20.1 percent) and Illinois (19.7rnpercent). These top five states combined account for 31.1 percent of negativernequity in the United States. The lowest percentages of negative equity are inrnTexas (3.3 percent), Montana (3.7 percent) North Dakota and Alaska (4.3 percentrneach), and Hawaii (4.4 percent).</p

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Of the total $384 billion in negativernequity, first liens without home equity loans accounted for $200 billion whilernhomes with both loans accounted for $184 billion.  The 3.8 billion borrowers with negativernequity and no home equity loan owe an average of $218,000 on their mortgage andrnhave negative equity of $52,000.  The 2.5rnmillion borrowers with both first and second liens have an average combinedrnmortgage balance of $290,000 and are underwater by $75,000.</p

Lack of equity continues to be arnstrong indicator of mortgage default.  Nationally,rnthe number of homes with equity had a default rate of 0.6 percent in the firstrnquarter, the same as in the previous quarter. However, homes with negativernequity had a default rate of 3.5 percent as of Q1 2014, down from 3.7 percentrnin Q4 2013.

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