Less Than 25% of Mortgages Now Underwater

Econintersect:  Zillow, the home-related marketplace company, has released its data for the second quarter of 2013.  The data shows the badly crippled home mortgage area is continuing a slow healing process.  For the fifth consecutive quarter the number of underwater mortgages declined.  Mortgages with balances larger that the market value of the home are said to be underwater.  According to Zillow, a total of 12.2 million mortgages still owe more than the house is worth, 23.8% of all mortgages.

Zillow says that more than 3 million mortgagors gained solid footing over the past year. In the second quarter of 2012 15.3 million homeowners held mortages with negative equity, more than 30% of all mortgages. Despite the marked improvement over the last twelve months, more than 6 million of those still underwater “likely won’t surface for years“. There are still areas in the country where the average mortgage is 20%, 30% or even more than 40% in negative equity. The following map shows county by county status around the U.S. Click on the map to go to an interactive version at Zillow which will show the data for any county selected.

Click on map for larger interactive version at Zillow.com.

Here is the complete press release from Zillow:

More Than Half of the 12.2 Million Borrowers Remaining Underwater Likely Won’t Surface for Years, According to Second Quarter Zillow Negative Equity Report

SEATTLE, Aug. 29, 2013 /PRNewswire/ — As home values continue to rise, the national negative equity rate continued to fall in the second quarter, dropping to 23.8 percent of all homeowners with a mortgage, according to the second quarter Zillow® Negative Equity Report[i]. However, millions of homeowners remain so far underwater that it will take years for them to regain equity, even as home values continue their recovery.

Approximately 12.2 million homeowners with a mortgage were in negative equity, or underwater, at the end of the second quarter, owing more on their mortgages than their homes are worth. That is down from 13 million homeowners in the first quarter and 15.3 million at the same time last year. Roughly one-third of homes are owned without a mortgage. The negative equity rate among all homeowners, both with and without a mortgage, was 16.7 percent at the end of the second quarter.

Nationwide, more than half (57 percent) of homeowners in negative equity are underwater by 20 percent or more, and roughly one in seven (13.4 percent) owes more than twice what their home is worth. According to the most recent Zillow Home Value Forecast[ii], home values are expected to rise 4.8 percent in the next year. Assuming appreciation at that rate going forward, it would take a homeowner underwater by 20 percent roughly four years to reach positive equity.

“Widespread rising home values during the past year have helped chip away at negative equity nationwide, helping many homeowners who were only modestly underwater to come up for air. For those homeowners who are deeply underwater, though, there is still a long row to hoe,” said Zillow Chief Economist Dr. Stan Humphries. “The frustratingly slow pace of negative equity declines in the face of such robust home value appreciation is a direct result of the fact that many people in the hardest-hit markets are underwater by an enormous amount. Because of this, negative equity will be a factor in these markets for years to come, constraining the supply of homes for sale and keeping people out of the market who might otherwise get involved.”

The “effective” negative equity rate, which includes those homeowners with a mortgage with 20 percent or less equity in their homes, fell to 41.9 percent, from 43.6 percent in the first quarter. Listing a home for sale and buying a new one generally requires equity of 20 percent or more to comfortably meet related expenses, including the down payment for a new home and associated closing costs, taxes and real estate agents’ fees. Homeowners without enough equity may remain tied to their homes, even if they are not underwater.

Among the 30 largest metro areas covered by Zillow, those with the highest percentage of mortgaged homeowners with negative equity in the second quarter include Las Vegas (48.4 percent), Atlanta (44 percent) and Orlando (39.8 percent). The second quarter Zillow Negative Equity Forecast[iii] predicts the negative equity rate among all homeowners with a mortgage will fall to at least 20.9 percent by the second quarter of 2014, lifting more than 1.9 million additional homeowners nationwide into positive equity. Of the 30 largest metro areas, the majority of these newly freed homeowners are anticipated to come from Los Angeles (89,677 homeowners), Riverside, Calif. (74,054 homeowners) and Atlanta (61,186 homeowners).

These results are from the second quarter edition of the Zillow Negative Equity Report, which looks at current outstanding loan amounts for individual owner-occupied homes and compares them to those homes’ current estimated values. Loan data is provided by TransUnion®, a global leader in credit and information management. This is the only report that uses current outstanding loan balances on all mortgages when calculating negative equity. Other reports estimate current outstanding loan balance based on the most recent loan on a property (i.e., the original loan amount at time of purchase or refinance).

Metropolitan Area	Q2 2013: % of Homeowners w/Mortgages in Negative Equity	Q2 2013: “Effective” Negative Equity Rate, Including Homeowners w/ 20% or Less Equity	Q2 2014: Forecasted Negative Equity Rate	Minimum # of Homeowners Expected to be Freed from Negative Equity by Q2 2014
UNITED STATES	23.8%	41.9%	20.9%	1,961,828
New York	18.7%	32.7%	18.5%	4,742
Los Angeles	18.4%	33.2%	13.1%	89,677
Chicago	35.4%	50.7%	33.2%	38,268
Dallas-Fort Worth	16.5%	42.1%	12.6%	41,436
Philadelphia	22.7%	40.6%	21.4%	14,719
Washington	25.3%	42.9%	23.1%	24,225
Miami-Fort Lauderdale	34.1%	47.1%	31.3%	26,778
Atlanta	44.0%	61.3%	38.2%	61,186
Boston	15.0%	32.3%	13.4%	13,327
San Francisco	17.7%	30.4%	12.8%	33,487
Detroit	37.0%	50.8%	34.0%	25,895
Riverside	36.1%	56.1%	25.1%	74,054
Phoenix	31.3%	47.4%	24.5%	52,236
Seattle	28.0%	46.1%	20.5%	50,065
Minneapolis-St. Paul	26.6%	46.4%	23.8%	19,294
San Diego	21.0%	39.2%	15.1%	27,640
St. Louis	26.6%	47.1%	25.8%	4,711
Tampa	36.3%	50.9%	31.7%	23,805
Baltimore	26.3%	44.4%	23.4%	15,773
Denver	15.3%	38.9%	12.8%	13,165
Pittsburgh	12.8%	27.9%	12.0%	3,110
Portland	22.3%	42.1%	17.7%	19,217
Sacramento	31.5%	50.2%	20.4%	41,781
Orlando	39.8%	55.4%	34.7%	19,541
Cincinnati	24.5%	46.6%	22.9%	6,749
Cleveland	27.1%	45.2%	25.6%	6,077
Las Vegas	48.4%	66.9%	41.3%	23,600
San Jose	11.2%	22.2%	7.9%	9,277
Columbus	26.0%	48.9%	24.3%	5,843
Charlotte	28.3%	51.5%	27.1%	4,443

About Zillow:
Zillow, Inc. (NASDAQ: Z) operates the largest home-related marketplaces on mobile and the Web, with a complementary portfolio of brands and products that help people find vital information about homes, and connect with the best local professionals. In addition, Zillow operates an industry-leading economics and analytics bureau led by Zillow’s Chief Economist Dr. Stan Humphries. Dr. Humphries and his team of economists and data analysts produce extensive housing data and research covering more than 350 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. The Zillow, Inc. portfolio includes Zillow.com®, Zillow Mobile, Zillow Mortgage Marketplace, Zillow Rentals, Zillow DigsTM, Postlets®, Diverse Solutions®, AgentfolioTM, Mortech® and HotPadsTM. The company is headquartered in Seattle.

Zillow.com, Zillow, Postlets, Diverse Solutions and Mortech are registered trademarks of Zillow, Inc. Agentfolio, HotPads and Digs are trademarks of Zillow, Inc.

TransUnion is a registered trademark of Trans Union LLC.

[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, 2,500 counties, and 24,000 ZIP codes across the nation.

[ii] July 2013-July 2014. The Zillow Home Value Forecast uses data from past home value trends and current market conditions, including leading indicators like home sales, months of housing inventory supply and unemployment, to predict home values over the next 12 months for the nation and for more than 250 markets across the country.

[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.

John Lounsbury

Sources:

• Negative Equity Rate Falls for 5th Straight Quarter in Q2; More Than 3 Million Underwater Homeowners Freed in Past Year (Press Release, Zillow, 29 August 2013)

• The U.S. Housing Crisis: Where are home loans underwater? (Zillow, Interactive Graphic 2Q/2013)