Low-Value Homes Leading the Climb Out of Negative Equity
Home values in the bottom third of the market helped pull more homeowners out of negative equity in the second quarter of 2015, and condos were more likely than houses to be underwater.
- The U.S. rate of negative equity among mortgaged homeowners continued to drop in the second quarter of 2015, to 14.4 percent-- the first time the rate has been below 15 percent since the real estate bubble burst.
- The improvement was spurred by value growth in the least valuable third of the housing stock, which are far more likely to be underwater than other homes.
- Condos are more likely to be underwater than single-family homes. Nearly 20 percent of all condos with a mortgage are upside down.
SEATTLE, Sept. 3, 2015 /PRNewswire/ -- The U.S. negative equity rate dropped below 15 percent in the second quarter of 2015, according to the Zillow® Negative Equity Reporti, but nearly 20 percent of condo-owners remain underwater.
Condo-owners were in far worse shape than single-family homeowners in Chicago, Orlando and Las Vegas. And in only three markets – Detroit, Memphis, and Pittsburgh – single-family homeowners were more likely to be underwater than condo-owners.
A high rate of homeowners who owe more on their mortgages than their homes are worth is a lingering effect of the real estate crisis. At its worst, more than 15 million homeowners were upside down on their homes. Foreclosures, short sales and rapidly rising home values freed nearly half of those homeowners, leaving 7.4 million homeowners upside down at the end of Q2 2015.
The continued decline of the overall negative equity rate was fueled in the first half of the year by strong appreciation for the least valuable third of homes. The least valuable homes are much more likely to be underwater than more valuable homesii.
In the Atlanta market, for example, nearly 43 percent of the least valuable homes are in negative equity, while only 9.4 percent of high-end homes are underwater. Annual home value appreciation among the least valuable homes in Atlanta had slowed for 12 straight months through June 2015. However, low-end homes have been appreciating annually more than more valuable homes. Since June 2014, annual appreciation in the bottom tier outpaced home value appreciation among all Atlanta homes, likely helping drive negative equity down there from 29 percent to 21 percent year-over-year.
Similar trends played out in Sacramento, Riverside, and Phoenix, all places that have struggled with high rates of negative equity.
"If the overall negative equity rate is going to continue to fall, it will need to keep being driven down by improving health at the bottom end of the market," said Zillow Chief Economist Dr. Svenja Gudell. "The least valuable homes really bore the brunt of negative equity during the recession, and that's where most negative equity remains concentrated today. As more first-time buyers enter the market seeking these less expensive homes, home value growth at the bottom end could continue to outpace growth overall, which will be good news for millions of underwater homeowners in these homes."
Among the 35 largest housing markets, Las Vegas, Chicago and Atlanta continued to have the highest rates of homeowners in negative equity. Condo-owners had the highest rates of negative equity in Las Vegas (36.7 percent), Chicago (32.6 percent), and Orlando (29.9 percent), while single-family homeowners had the highest rates in Las Vegas (23.8 percent), Atlanta (20.4 percent) and Chicago (19.2 percent).
| Metro Area |
Q2 2015 Negative Equity Rate |
% Change in Number of Homes in Negative Equity From Q2 2014 to Q2 2015 |
Q2 Negative Equity Rate for Condos |
Q2 2015 Negative Equity Rate for Bottom-Tier Homes |
| United States |
14.4% |
-19.3% |
19.3% |
24.0% |
| New York-Northern New Jersey |
12.0% |
-17.1% |
12.6% |
23.4% |
| Los Angeles, CA |
7.8% |
-25.3% |
10.1% |
12.2% |
| Chicago, IL |
22.0% |
-17.8% |
32.6% |
|
| Dallas-Fort Worth, TX |
6.2% |
-38.7% |
11.2% |
|
| Philadelphia, PA |
16.9% |
-9.2% |
23.4% |
32.4% |
| Houston, TX |
6.4% |
-25.1% |
14.0% |
|
| Washington, DC |
16.4% |
-13.7% |
20.2% |
28.5% |
| Miami-Fort Lauderdale, FL |
16.3% |
-25.8% |
23.0% |
29.9% |
| Atlanta, GA |
20.9% |
-28.6% |
27.8% |
42.7% |
| Boston, MA |
7.9% |
-24.4% |
12.9% |
13.6% |
| San Francisco, CA |
5.4% |
-37.8% |
7.1% |
10.9% |
| Detroit, MI |
18.3% |
-24.0% |
17.3% |
|
| Riverside, CA |
15.8% |
-20.6% |
20.5% |
24.2% |
| Phoenix, AZ |
18.2% |
-17.5% |
26.1% |
27.0% |
| Seattle, WA |
11.9% |
-34.2% |
20.1% |
19.5% |
| Minneapolis-St Paul, MN |
13.2% |
-21.7% |
22.1% |
22.9% |
| San Diego, CA |
8.6% |
-26.3% |
12.7% |
12.7% |
| St. Louis, MO |
18.8% |
-17.9% |
24.7% |
37.6% |
| Tampa, FL |
17.6% |
-25.3% |
23.9% |
34.1% |
| Baltimore, MD |
17.8% |
-13.4% |
24.9% |
30.5% |
| Denver, CO |
6.0% |
-29.9% |
9.9% |
8.5% |
| Pittsburgh, PA |
10.2% |
-8.8% |
9.6% |
20.6% |
| Portland, OR |
7.5% |
-40.9% |
15.5% |
10.6% |
| Sacramento, CA |
13.0% |
-23.8% |
25.4% |
20.1% |
| San Antonio, TX |
11.0% |
-19.0% |
16.7% |
|
| Orlando, FL |
17.8% |
-25.8% |
29.9% |
31.2% |
| Cincinnati, OH |
15.4% |
-18.7% |
23.3% |
29.3% |
| Cleveland, OH |
18.3% |
-16.3% |
22.5% |
38.4% |
| Kansas City, MO |
17.9% |
-14.9% |
23.8% |
|
| Las Vegas, NV |
25.0% |
-16.4% |
36.7% |
38.3% |
| San Jose, CA |
3.4% |
-31.8% |
5.1% |
6.2% |
| Columbus, OH |
14.2% |
-25.5% |
24.6% |
30.7% |
| Charlotte, NC |
12.1% |
-34.5% |
21.3% |
20.0% |
| Indianapolis, IN |
15.0% |
-17.1% |
21.0% |
|
| Austin, TX |
6.9% |
-22.4% |
11.0% |
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.
Zillow is a registered trademark of Zillow, Inc.
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.
SOURCE Zillow
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