More than One in 10 Homeowners Underwater as Housing Market Nears Full Recovery

Rising home values are freeing homeowners from negative equity, allowing them to re-enter the market, but 11 percent of homeowners remain upside-down

- Nationally, the negative equity rate fell to 10.9 percent in the third quarter, down from 13.4 percent a year ago.

- Western metros have the lowest rates of negative equity.

- 26.1 percent of homeowners with a mortgage have less than 20 percent equity in their homes, or are in effective negative equity.

News provided by

Zillow

Dec 15, 2016, 08:00 ET

SEATTLE, Dec. 15, 2016 /PRNewswire/ -- Even as home values approach the highest levels reached during the housing bubble, 11 percent of homeowners with a mortgage are underwater, according to the third quarter Zillow® Negative Equity Reportⁱ.

The share of homeowners who owe more on their mortgages than their homes are worth has dropped by nearly two-thirds since the housing bubble burst four years ago. Nationally 5.3 million homeowners were in negative equity in the third quarter, meaning they owe more than their homes are worth. At the peak in Q1 2012, 15.7 million homeowners were underwater on their mortgages.

The numbers are another sign that the housing market has nearly regained the value lost during the recession, and is only 2.7 percent below the peak reached at the height of the bubble. Not all regions have experienced the same recovery, though, and some markets are still well below those bubble highs.

Underwater homeowners can't refinance to take advantage of still-low mortgage rates and they can't sell their homes except in short sales, which keeps these homes off the market, contributing to low inventory.

Seven of the 10 large metros with the lowest rates of negative equity are along the West Coast, and also have strong economic markets. Fewer than five percent of homeowners are underwater in San Jose, San Francisco, Portland, Ore., Denver, and Dallas. In these metros, home values have also surpassed the highest point reached during the bubble, and are now higher than ever.

Chicago and Las Vegas have the highest levels of negative equity, with 17 percent and 16.8 percent of homeowners underwater respectively. Home values in these markets remain well below their peak levels.

"As the housing market recovers and home values rise, the number of homeowners underwater on their mortgages continues to drop," said Zillow Chief Economist Dr. Svenja Gudell. "In addition to the individual homeowners who are underwater, negative equity affects the housing market as a whole, so this is good news not only for these owners, who are now able to either sell their home or at least regain some financial stability, but also for buyers who may find more options now. I expect homes will gain value steadily, for solid economic reasons, and that negative equity rates will continue to fall."

Homeowners who have less than 20 percent equity in their homes may find it difficult to cover the associated costs of selling, such as agent fees, closing costs, and a new down payment if they are buying a new home. More than a quarter of homeowners with a mortgage are in this situation, known as effective negative equity.

Metropolitan Area	Percent of Underwater Homeowners	Total Amount of Negative Equity	Number of Homes in Negative Equity	Effective Negative Equity Rate
United States	10.9%	$479 billion	5,269,166	26.1%
New York/Northern New Jersey	10.0%	$40 billion	250,842	21.5%
Los Angeles-Long Beach-Anaheim, CA	5.7%	$18.8 billion	90,452	14.0%
Chicago, IL	17.0%	$29.8 billion	277,867	33.5%
Dallas-Fort Worth, TX	4.4%	$5 billion	44,998	12.7%
Philadelphia, PA	11.8%	$10.7 billion	124,492	29.4%
Houston, TX	6.9%	$6.1 billion	59,000	19.4%
Washington, DC	12.4%	$19.9 billion	136,068	30.5%
Miami-Fort Lauderdale, FL	10.6%	$9.8 billion	88,840	21.1%
Atlanta, GA	13.0%	$10.8 billion	127,592	30.3%
Boston, MA	6.2%	$7.9 billion	49,005	14.3%
San Francisco, CA	3.7%	$5.9 billion	24,224	8.9%
Detroit, MI	12.2%	$5.8 billion	93,270	24.0%
Riverside, CA	10.5%	$8.3 billion	65,609	26.3%
Phoenix, AZ	11.2%	$9.1 billion	79,519	29.6%
Seattle, WA	6.6%	$6.8 billion	41,667	17.2%
Minneapolis-St Paul, MN	7.3%	$5 billion	48,956	22.4%
San Diego, CA	6.3%	$4.9 billion	27,452	18.1%
St. Louis, MO	12.6%	$4.2 billion	66,607	30.8%
Tampa, FL	10.5%	$3.6 billion	48,764	24.9%
Baltimore, MD	14.4%	$7.9 billion	73,895	34.4%
Denver, CO	4.4%	$3.3 billion	22,326	11.9%
Pittsburgh, PA	8.1%	$2.2 billion	33,395	19.8%
Portland, OR	3.8%	$2.1 billion	15,152	11.7%
Charlotte, NC	8.1%	$3.6 billion	34,268	24.2%
Sacramento, CA	7.6%	$3.6 billion	27,123	20.9%
San Antonio, TX	10.2%	$2.9 billion	30,933	28.3%
Orlando, FL	11.4%	$3.3 billion	39,743	27.0%
Cincinnati, OH	10.8%	$3.1 billion	43,385	29.6%
Cleveland, OH	14.6%	$3.3 billion	55,547	31.1%
Kansas City, MO	12.4%	$3 billion	44,646	33.1%
Las Vegas, NV	16.8%	$5 billion	49,809	36.8%
Columbus, OH	9.0%	$2.7 billion	31,314	24.1%
Indianapolis, IN	12.8%	$3 billion	46,772	33.9%
San Jose, CA	2.6%	$1.9 billion	6,905	6.4%
Austin, TX	6.6%	$2.2 billion	18,383	18.6%

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