Negative Equity Worst at Low End, Jamming 'Housing Conveyor Belt"

The plight of underwater homeowners is proving to be pesky tornresolve if Zillow’s latest numbers on negative equity are correct.  The company said today that while homeownersrnwith a larger mortgage balance than their homes were worth dropped from 16.9rnpercent in the fourth quarter of 2014 to 15.4 percent in the first quarter ofrnthis year, slowing home value growth means that many could be “trapped in theirrnmortgages for years to come.”</p

Of the estimated 7.9 million homeowners who were underwaterrnin the quarter, Zillow says about 4 million owed their lenders 20 percent orrnmore than the market value of their homes. This means it could be several yearsrnbefore those homes appreciate to a point that their owners could hope to breakrneven on a sale. </p

Atrnthe peak of the real estate crisis more than 15 million homeowners were upsiderndown on their mortgages, a number now halved by rising home prices, foreclosures,rnand short-sales. The current 15.4 percent rate is also down significantly fromrn18.8 percent in the first quarter of 2014.  Zillow said those remaining cases of negativernequity will likely be the toughest ones tornremedy. </p

More than 25 percent of those who ownrnthe least valuable third of homes were upside down, compared to about 8 percentrnof the most valuable third of homes. rnZillow pointed out that there is high demand for homes in the bottomrnthird of the market.  However, arndisproportionate number of those homeowners are simply stuck and can’t affordrnto sell to buyers looking for homes in their price range. </p

The imbalance was even more pronouncedrnin some markets. In Atlanta, for example, 46 percent of low-end homeowners werernunderwater, compared with 10 percent of high-end homeowners. In Baltimore, thernnegative equity rate was 32 percent at the low-end compared to 9 percent among thernhighest-value homes. </p

Zillow Chief Economist Dr. StanrnHumphries said, “It’s great news that the level of negative equity isrnfalling, but what really worries me is the depth of negative equity. Millionsrnof Americans are so far underwater, it’s likely they may not re-gain equity forrnup to a decade or more at these rates.  Andrnbecause negative equity is concentrated so heavily at the lower end, it throwsrna real wrench in the traditional housing market conveyor belt.  The logjam at the bottom is having ripplerneffects throughout the market, and as home value growth slows, it will be yearsrnbefore it gets cleared up. In the meantime, we’ll be left with volatile prices,rnlimited inventory, tepid demand, elevated foreclosures and a whole lot ofrnfrustration.”</p

The rate of negative equity improved inrnall of the 35 largest housing markets in the first quarter of 2015.  Las Vegas, Chicago and Atlanta had the highestrnrates while a smaller share were upside down in Miami and Detroit, butrnhomeowners there were more deeply underwater; in each over 60 percent of negativernequity exceeded 20 percent.

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