Negative Equity Still a Drag on the U.S. Housing Market

Despite improvements in the negative equity rate, underwater mortgages are holding back the housing market from full recovery

By Jeff Sorg, OnlineEd Blog

SOURCE: Zillow

underwater(December 4, 2015) /PRNewswire/  – The U.S. negative equity rate continued to drop in the third quarter of 2015, according to the Zillow® Negative Equity Report.i Nationally, 13.4 percent of homeowners owe more on their mortgage than their home is worth, down from 14.4 percent last quarter, and 16.9 percent a year ago.

Negative equity is one of the most persistent reminders of the housing market crash. Homeowners who owe more on their mortgage than their homes are worth cannot sell, which holds back markets from recovering.

Typically, negative equity rates will be close to 2-5 percent. Today, eight years after the housing crash, it remains a major barrier to a full recovery in certain markets. In Las Vegas, 22 percent of homeowners remain underwater, and another 19 percent are effectively underwater, meaning they have less than 20 percent equity in their home and therefore can’t cover the cost of selling their home and buying another.

Las Vegas has had the highest negative equity rate in the country for the past four and a half years, and Kansas City and Cleveland, with 16.6 and 16.8 percent negative equity respectively, are not far behind. San Francisco and San Jose are the only large markets where less than five percent of homeowners are underwater.

Almost a million homeowners were freed from negative equity in the third quarter of 2015. The improving rate means those people may be able to sell or refinance their homes before mortgage interest rates rise, as they are expected to do in the coming weeks.

“Negative equity has become almost an afterthought in a handful of the nation’s hottest markets, but is holding back the recovery in dozens of large markets nationwide,” said Zillow Chief Economist Dr.Svenja Gudell. “Despite steady declines in negative equity, many cities are still facing tight inventory, especially among entry-level homes. Those homes that are available are often not in demand and stay on the market for a long time. This can be extremely frustrating for buyers and sellers alike, as they come face to face with the difficult side effects of negative equity.”

Negative equity affects individual homeowners, but markets with high negative equity rates tend to have fewer homes for sale, especially lower-priced homes favored by first-time homebuyers. In markets with a lot of negative equity, homes generally take longer to sell than in other places.

Below are the top five large metros with the highest and lowest percent of homeowners underwater.

Smallest Share of Underwater Homeowners

  1. San Jose, CA – 3.0 percent
  2. San Francisco, CA – 4.7 percent
  3. Denver, CO – 5.5 percent
  4. Dallas-Fort Worth, TX – 5.8 percent
  5. Portland, OR – 6.2 percent

Largest Share of Underwater Homeowners

  1. Las Vegas, NV – 22.1 percent
  2. Chicago, IL – 20.6 percent
  3. Atlanta, GA – 18.6 percent
  4. St. Louis, MO – 17.6 percent
  5. Baltimore, MD – 16.9 percent

 

Metro Name Q3 2015 Effective Negative Equity Rate Q3 2015 Negative Equity Rate Q3 2014 Negative Equity Rate
United States 30.2% 13.4% 16.9%
New York-Northern New Jersey 24.3% 11.5% 13.6%
Los Angeles-Long Beach-Anaheim, CA 16.6% 7.1% 7.8%
Chicago, IL 37.8% 20.6% 25.3%
Dallas-Fort Worth, TX 18.4% 5.8% 9.3%
Philadelphia, PA 33.8% 15.5% 18.1%
Houston, TX 18.4% 6.2% 7.4%
Washington, DC 34.2% 15.7% 18.4%
Miami-Fort Lauderdale, FL 26.1% 14.7% 20.1%
Atlanta, GA 37.9% 18.6% 27.1%
Boston, MA 18.3% 7.1% 9.6%
San Francisco, CA 11.0% 4.7% 7.3%
Detroit, MI 29.8% 16.6% 22.0%
Riverside, CA 30.7% 14.3% 18.2%
Phoenix, AZ 35.4% 16.4% 21.7%
Seattle, WA 25.7% 10.2% 16.2%
Minneapolis-St Paul, MN 30.8% 11.7% 15.6%
San Diego, CA 21.6% 8.1% 10.1%
St. Louis, MO 37.6% 17.6% 22.7%
Tampa, FL 31.5% 15.7% 22.0%
Baltimore, MD 36.9% 16.9% 20.1%
Denver, CO 15.2% 5.5% 8.2%
Pittsburgh, PA 23.3% 9.8% 10.7%
Portland, OR 20.8% 6.2% 11.2%
Charlotte, NC 32.1% 11.0% 16.5%
Sacramento, CA 27.3% 11.6% 15.7%
San Antonio, TX 31.2% 10.7% 12.2%
Orlando, FL 32.6% 16.1% 21.9%
Cincinnati, OH 35.6% 14.5% 18.7%
Cleveland, OH 34.5% 16.8% 20.7%
Kansas City, MO 38.1% 16.6% 20.7%
Las Vegas, NV 41.3% 22.1% 27.8%
Columbus, OH 31.8% 12.9% 17.6%
Indianapolis, IN 37.2% 15.5% 17.9%
San Jose, CA 7.7% 3.0% 4.5%
Austin, TX 20.3% 6.8% 8.0%

 

Zillow is a registered trademark of Zillow, Inc.

SOURCE: Zillow

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Jeff Sorg

About the Author

Jeff Sorg is a co-founder of OnlineEd®, a Web-based vocational school founded in 1997 where he also serves as Corporate Secretary, Chief Operating Officer, and School Director. Sorg holds vocational instructor licenses in Oregon, Washington, California, and Nevada and has authored numerous pre-licensing and continuing education courses. Sorg was awarded the International Distance Education Certification Center's CDEi Designation for distance education in 2008. OnlineEd® provides real estate, mortgage broker, insurance, and contractor pre-license, post-license, continuing education, career enhancement, and professional development and designation courses over the Internet.