Underwater Homeowners Took a Dip in Q4

For the first time in years, the number of homeowners who owe more on their mortgages than their homes are worth actually increased on a quarterly basis rising 3.3 percent in the fourth quarter of last year, a sign of the weakness of the recovery in the waning months of 2014.

Despite a strengthening economy and tight mortgage underwriting standards designed to limit borrowers’ indebtedness, CoreLogic reports approximately 172,000 U.S. homes slipped into negative equity in the fourth quarter of 2014 from the third quarter 2014, increasing the total number of mortgaged residential properties with negative equity to 5.4 million, or 10.8 percent of all mortgaged properties. This compares to 5.2 million homes, or 10.4 percent, that were reported with negative equity in Q3 2014*, a quarter-over-quarter increase of 3.3 percent. Compared to 6.6 million homes, or 13.4 percent, reported for Q4 2013, the number of underwater homes has decreased year over year by 1.2 million or 18.9 percent.

For the homes in negative equity status, the national aggregate value of negative equity was $349 billion at the end of Q4 2014. Negative equity value increased approximately $7 billion from $341.8 billion in Q3 2014 to $348.8 billion in Q4 2014. On a year-over-year basis, however, the value of negative equity declined overall from $403 billion in Q4 2013, representing a decrease of 13.4 percent in 12 months.

“The share of homeowners that had negative equity increased slightly in the fourth quarter of 2014, reflecting the typical weakness in home values during the final quarter of the year,” said Dr. Frank Nothaft, chief economist for CoreLogic. “Our CoreLogic HPI dipped 0.7 percent from September to December, and the percent of owners ‘underwater’ increased to 10.8 percent. However, from December-to-December, the CoreLogic index was up 4.8 percent, and the negative equity share fell by 2.6 percentage points.”

Under Equitied Homeowners Now at 10 Million

Of the 49.9 million residential properties with a mortgage, approximately 10 million, or 20 percent, have less than 20-percent equity (referred to as “under-equitied”) and 1.4 million of those have less than 5-percent equity (referred to as near-negative equity). Borrowers who are “under-equitied” may have a more difficult time refinancing their existing homes or obtaining new financing to sell and buy another home due to underwriting constraints. Borrowers with near-negative equity are considered at risk of moving into negative equity if home prices fall. In contrast, if home prices rose by as little as 5 percent, an additional 1 million homeowners now in negative equity would regain equity.

“Negative equity continued to be a serious issue for the housing market and the U.S. economy at the end of 2014 with 5.4 million homeowners still ‘underwater’,” said Anand Nallathambi, president and CEO of CoreLogic. “We expect the situation to improve over the course of 2015. We project that the CoreLogic Home Price Index will rise 5 percent in 2015, which will lift about 1 million homeowners out of negative equity.”

Highlights as of Q4 2014:

Nevada had the highest percentage of mortgaged properties in negative equity at 24.2 percent; followed by Florida (23.2 percent); Arizona (18.7 percent); Illinois (16.2 percent) and Rhode Island (15.8 percent). These top five states combined account for 31.7 percent of negative equity in the United States.

Texas had the highest percentage of mortgaged residential properties in an equity position at 97.4 percent, followed by Alaska (97.2 percent), Montana (97.0 percent), Hawaii (96.3 percent) and North Dakota (96.2 percent).

Of the 25 largest Core Based Statistical Areas (CBSAs) based on mortgage count, Tampa-St. Petersburg-Clearwater, Fla., had the highest percentage of mortgaged properties in negative equity at 24.8 percent, followed by Phoenix-Mesa-Scottsdale, Ariz. (18.8 percent), Chicago-Naperville-Arlington Heights, Ill. (18.5 percent), Riverside-San Bernardino-Ontario, Calif. (14.8 percent) and Atlanta-Sandy Springs-Roswell, Ga. (14.6 percent).

Of the same largest 25 CBSAs, Houston-The Woodlands-Sugar Land, Texas had the highest percentage of mortgaged properties in an equity position at 97.7 percent, followed by Dallas-Plano-Irving, TX (97.1 percent), Anaheim-Santa Ana-Irvine, Calif. (96.4 percent), Portland-Vancouver-Hillsboro, Ore. (96.4 percent) and Denver-Aurora-Lakewood, Col. (96.2 percent).

Of the total $349 billion in negative equity, first liens without home equity loans accounted for $185 billion aggregate negative equity, while first liens with home equity loans accounted for $164 billion, or 47 percent.

Approximately 3.2 million underwater borrowers hold first liens without home equity loans. The average mortgage balance for this group of borrowers is $228,000. The average underwater amount is $57,000.

Approximately 2.1 million underwater borrowers hold both first and second liens. The average mortgage balance for this group of borrowers is $295,000.The average underwater amount is $77,000.

The bulk of home equity for mortgaged properties is concentrated at the high end of the housing market. For example, 94 percent of homes valued at greater than $200,000 have equity compared with 84 percent of homes valued at less than $200,000.

*Q3 2014 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.