Approximately 6.5 Million Residential Properties with a Mortgage Still in Negative Equity
from CoreLogic
4 million homes returned to positive equity in 2013, bringing the total number of mortgaged residential properties with equity to 42.7 million. The CoreLogic analysis indicates that nearly 6.5 million homes, or 13.3 percent of all residential properties with a mortgage, were still in negative equity at the end of 2013. Due to a small slowdown in the quarterly growth rate of the Home Price Index, the negative equity share was virtually unchanged from the end of the third quarter of 2013.*
Negative equity, often referred to as “underwater” or “upside down,” means that borrowers owe more on their mortgages than their homes are worth. Negative equity can occur because of a decline in value, an increase in mortgage debt or a combination of both.
For the homes in negative equity status, the national aggregate value of negative equity was $398.4 billion for fourth quarter 2013, compared to $401.3 billion for third quarter 2013, a decrease of $2.9 billion.
Of the 42.7 million residential properties with positive equity, 10 million have less than 20-percent equity. Borrowers with less than 20-percent equity, referred to as “under-equitied,” may have a more difficult time obtaining new financing for their homes due to underwriting constraints. Under-equitied mortgages accounted for 21.1 percent of all residential properties with a mortgage nationwide in 2013, with more than 1.6 million residential properties at less than 5-percent equity, referred to as near-negative equity. Properties that are near-negative equity are considered at risk if home prices fall. Said Mark Fleming, chief economist and Anand Nallathambi, president and CEO of CoreLogic:
The plight of the underwater borrower has improved dramatically since negative equity peaked in December 2009 when more than 12 million mortgaged homeowners were underwater. Over the past four years, more than 5.5 million homeowners have regained equity, reducing their risk of foreclosure and unlocking pent-up supply in the housing market.
During 2013, more than 4 million property owners were able to regain equity due in large part to home price appreciation. Only 14 states have a higher negative equity average than the U.S., and more states should experience improvement throughout 2014.
Highlights as of Q4 2013:
- Nevada had the highest percentage of mortgaged properties in negative equity at 30.4 percent, followed by Florida (28.1 percent), Arizona (21.5 percent), Ohio (19.0 percent) and Illinois (18.7 percent). These top five states combined account for 36.9 percent of negative equity in the United States.
- Of the 25 largest Core Based Statistical Areas (CBSAs) based on population, Orlando-Kissimmee-Sanford, Fla., had the highest percentage of mortgaged properties in negative equity at 31.5 percent, followed by Tampa-St. Petersburg-Clearwater, Fla. (30.4 percent), Phoenix-Mesa-Scottsdale, Ariz. (22.1 percent), Chicago-Naperville-Arlington Heights, Ill. (21.4 percent) and Atlanta-Sandy Springs-Roswell, Ga. (19.9 percent).
- Of the total $398 billion in negative equity, first liens without home equity loans accounted for $205 billion aggregate negative equity, while first liens with home equity loans accounted for $193 billion.
- Approximately 3.9 million upside-down borrowers hold first liens without home equity loans. The average mortgage balance for this group of borrowers is $219,000. The average underwater amount is $52,000.
- Approximately 2.6 million upside-down borrowers hold both first and second liens. The average mortgage balance for this group of borrowers is $293,000.The average underwater amount is $75,000.
- The bulk of home equity for mortgaged properties is concentrated at the high end of the housing market. For example, 92 percent of homes valued at greater than $200,000 have equity compared with 81 percent of homes valued at less than $200,000.
*Third quarter 2013 data was revised. Revisions with public records data are standard, and to ensure accuracy, CoreLogic incorporates the newly released public data to provide updated results.
*This data only includes properties with a mortgage. Non-mortgaged properties are by definition not included.
** Defined as properties within 5 percent of being in a negative equity position.
Methodology
The amount of equity for each property is determined by comparing the estimated current value of the property against the mortgage debt outstanding (MDO). If the MDO is greater than the estimated value, then the property is determined to be in a negative equity position. If the estimated value is greater than the MDO, then the property is determined to be in a positive equity position. The data is first generated at the property level and aggregated to higher levels of geography. CoreLogic data includes 49 million properties with a mortgage, which accounts for more than 85 percent of all mortgages in the U.S. CoreLogic uses its public record data as the source of the MDO, which includes both first-mortgage liens and second liens, and is adjusted for amortization and home equity utilization in order to capture the true level of MDO for each property. The calculations are not based on sampling, but rather on the full data set to avoid potential adverse selection due to sampling. The current value of the property is estimated using a suite of proprietary CoreLogic valuation techniques, including valuation models and the CoreLogic Home Price Index (HPI). Only data for mortgaged residential properties that have a current estimated value is included. There are several states or jurisdictions where the public record, current value or mortgage coverage is thin. These instances account for fewer than 5 percent of the total U.S. population.
