CoreLogic has released new analysis showing four 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 five percent equity, referred to as near-negative equity. Properties that are near-negative equity are considered at risk if home prices fall.
“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,” said Mark Fleming, chief economist for CoreLogic. “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.”
“Stability and growth in the housing market are essential for a durable recovery of the U.S. economy,” said Anand Nallathambi, president and CEO of CoreLogic. “The rebound in home prices in 2013 helped four million property owners regain at least some positive equity in their largest asset—their home. We still have a long way to go to eliminate the negative equity overhang but significant progress is being made every day across most of the country.”
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.