Underwater Homeowners Sink Deeper, Even as Home Values Rise

The rate of homeowners who owe more on their mortgage than their homes are worth is stalled and even worsening in some places for the first time since the recession, according to a new Zillow report

- Home values continue to rise, but negative equity is going up in 21 of the largest 50 housing markets, indicating many underwater homes are not rising in value.

- More than a quarter of mortgaged homes are underwater in some markets in Florida and the Midwest. The national negative equity rate is 16.9 percent.

- Home values rose 5.9 percent nationally last year. Low-end homes are far more likely to be worth less than the balance of their mortgage.

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Zillow

Mar 20, 2015, 08:00 ET

SEATTLE, March 20, 2015 /PRNewswire/ -- Owners of homes at the bottom of the market are trapped underwater on their mortgages even as the real estate market continues to recover, according to the fourth quarter Zillow® Negative Equity Report[i]. That's because low end[ii] homes – the most likely to be upside-down -- are losing value.

At the peak of the real estate crisis, more than 15 million homeowners owed more on their mortgages than their homes were worth, putting them in negative equity. Foreclosures, short sales and rapidly rising home values freed nearly half of those homeowners, but now that trend has reversed in many metros. Three years into the recovery, home values overall continued to recover while owners of the lowest-valued homes – those most likely to be stuck in negative equity – were left behind.

"Higher negative equity rates have become the new normal," said Zillow Chief Economist Dr. Stan Humphries. "We've long been expecting the negative equity rate to fall more slowly as home value growth also slows, and unfortunately that's exactly what we're seeing. Compounding the problem is the fact that negative equity is decidedly not an equal opportunity predator, and looms larger over the bottom 10 percent of homes, where homeowners are least prepared to withstand the assault."

In the fourth quarter of 2014, the negative equity rate worsened in 21 of the top 50 U.S. markets. Nationally, home values rose around six percent in 2014.

Less valuable homes are much more likely to be underwater. For example, in Atlanta, 49 percent of homes in the bottom-third of home values are in negative equity, compared to 11 percent of mortgaged homes in the highest valued third.

Nationally, 16.9 percent of all homes with a mortgage are in negative equity, and that is expected[iii] to fall to 15.4 percent by the end of 2015. Among large metros, Virginia Beach (28.3 percent), Jacksonville (27.0 percent), Las Vegas (26.4 percent), and Atlanta (26.1 percent) had the highest rates of negative equity.

Metropolitan Area	Q4 2014 Negative Equity Rate	Percentage-Point Change in Negative Equity Rate Since Q3 2014	Q4 2014 Negative Equity Rate Among Low-End Homes	Percentage-Point Change in Low-End Negative Equity Rate Since Q3 2014	Overall Year-Over-Year Home Value Change
UNITED STATES	16.9%	-0.1	27.3%	0.0	5.9%
New York-Northern New Jersey	13.1%	-0.5	25.0%	-0.4	4.2%
Los Angeles	8.6%	-0.8	13.3%	-1.3	5.1%
Chicago	25.1%	-0.2	41.5%	0.1	4.7%
Dallas-Fort Worth	8.6%	-0.7	14.6%	-0.5	8.3%
Philadelphia	19.1%	1.0	34.3%	1.5	4.6%
Houston	7.5%	0.1	N/A	N/A	12.3%
Washington	18.2%	-0.2	30.7%	-0.7	4.3%
Miami-Fort Lauderdale	19.0%	-1.1	33.6%	-1.4	14.0%
Atlanta	26.1%	-1.0	49.0%	-1.5	11.4%
Boston	9.8%	0.2	16.7%	-0.4	3.7%
San Francisco	6.6%	-0.8	12.6%	-1.8	7.3%
Detroit	21.3%	-0.8	50.2%	1.0	8.7%
Riverside	17.0%	-1.2	25.9%	-1.0	9.7%
Phoenix	20.6%	-1.1	30.4%	-1.3	4.6%
Seattle	15.6%	-0.6	25.8%	-1.8	6.4%
Minneapolis-St Paul	15.5%	-0.1	26.3%	-0.8	5.8%
San Diego	8.9%	-1.2	13.2%	-1.9	4.2%
St. Louis	22.8%	0.0	41.9%	0.6	2.4%
Tampa	21.2%	-0.7	39.2%	-0.8	9.5%
Baltimore	20.3%	0.2	33.4%	0.0	2.7%
Denver	7.7%	-0.5	11.1%	-1.7	14.0%
Pittsburgh	12.1%	1.3	23.5%	2.7	5.2%
Portland	10.9%	-0.3	16.5%	-1.0	5.7%
Sacramento	14.8%	-0.9	22.4%	-1.1	7.3%
San Antonio	12.3%	0.1	N/A	N/A	5.5%
Orlando	20.9%	-0.9	35.4%	-1.0	10.0%
Cincinnati	19.2%	0.5	35.3%	0.6	4.9%
Cleveland	21.4%	0.7	42.6%	1.5	2.8%
Kansas City	20.9%	0.2	42.8%	0.8	5.7%
Las Vegas	26.4%	-1.4	40.6%	-1.1	10.7%
San Jose	4.0%	-0.5	7.0%	-1.0	10.1%
Columbus	17.6%	0.0	36.0%	0.1	5.2%
Charlotte	16.3%	-0.2	25.9%	-0.9	5.5%
Indianapolis	18.3%	0.3	N/A	N/A	-1.1%
Austin	7.9%	-0.1	N/A	N/A	11.1%

About Zillow Research

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. Stan Humphries. In 2015, Dr. Humphries co-wrote and published the New York Times' bestselling "Zillow Talk: The New Rules of Real Estate." Dr. Humphries and his 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 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.

[ii] "Low-end homes" are homes valued in the bottom third of home values for their market.

[iii]The Zillow Negative Equity Forecast is a conservative estimate of what negative equity rates will be a year from now. To forecast negative equity, we take the current home value of a house and appreciate it by the Zillow Home Value Forecast (ZHVF) for the MSA in which the home is located. In cases where there is no ZHVF available, we use the historical rate of home appreciation, and for metros that don't have a historical rate of appreciation, we use the historical rate of inflation at the national level. For homes that are not located in a metropolitan area, we use the forecasted national rate of appreciation. To calculate the level of home equity a year from now, we use the forecasted home value and the current outstanding debt balance, where we make no assumptions about a homeowner's debt level a year from now. We also make no assumptions about foreclosure activity in the coming year. Therefore, this forecast is a very conservative one, as homeowners will likely continue to pay down their debt throughout the year and homes will likely continue to be foreclosed on, and both of these factors will contribute to a lower negative equity rate. The Zillow Negative Equity Forecast can therefore be considered a higher bound estimate of negative equity.

SOURCE Zillow