4 Million Properties Remain in Negative Equity
IRVINE, Calif., June 9, 2016 – CoreLogic® (NYSE: CLGX), a leading global property information, analytics and data-enabled services provider, today released a new analysis showing 268,000 homeowners regained equity in Q1 2016, bringing the total number of mortgaged residential properties with equity at the end of Q1 2016 to approximately 46.7 million, or 92 percent of all mortgaged properties. Nationwide, home equity increased year over year by $762 billion in Q1 2016.
The total number of mortgaged residential properties with negative equity stood at 4 million, or 8 percent of all homes with a mortgage, in Q1 2016. This is a decrease of 6.2 percent quarter over quarter from 4.3 million homes, or 8.5 percent, in Q4 2015* and a decrease of 21.5 percent year over year from 5.1 million homes, or 10.3 percent, compared with Q1 2015.
Negative equity, often referred to as “underwater” or “upside down,” applies to borrowers who owe more on their mortgages than their homes are worth. Negative equity can occur because of a decline in home 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 $299.5 billion at the end of Q1 2016, falling approximately $11.8 billion, or 3.8 percent, from $311.3 billion in Q4 2015. On a year-over-year basis, the value of negative equity declined overall from $340 billion in Q1 2015, representing a decrease of 11.8 percent in 12 months.
Of the more than 50 million homes with a mortgage, approximately 9.1 million, or 18 percent, have less than 20 percent equity (referred to as “under-equitied”) and 1.1 million, or 2.2 percent, have less than 5 percent equity (referred to as near-negative equity). Borrowers who are under-equitied may have a 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 just the last four years, equity for homeowners with a mortgage has nearly doubled to $6.9 trillion,” said Frank Nothaft, chief economist for CoreLogic. “The rapid increase in home equity reflects the improvement in home prices, dwindling distressed borrowers and increased principal repayment. These are all positive factors that will provide support to both household balance sheets and the overall economy.”
“More than 1 million homeowners have escaped the negative equity trap over the past year. We expect this positive trend to continue over the balance of 2016 and into next year as home prices continue to rise,” said Anand Nallathambi, president and CEO of CoreLogic. “Nationally, the CoreLogic Home Price Index was up 5.5 percent year over year through the first quarter. If home values rise another 5 percent uniformly across the U.S., the number of underwater borrowers will fall by another one million during the next year.”
Highlights as of Q1 2016:
- Nevada had the highest percentage of homes in negative equity at 17.5 percent, followed by Florida (15 percent), Illinois (14.4 percent), Rhode Island (13.3 percent) and Maryland (12.9 percent). Combined, these top five states account for 30.2 percent of negative equity in the U.S., but only 16.5 percent of outstanding mortgages.
- Texas had the highest percentage of homes with positive equity at 98.1 percent, followed by Alaska (97.8 percent), Hawaii (97.8 percent), Colorado (97.5 percent) and Washington (97.2 percent).
- Of the 10 largest metropolitan areas by population, Las Vegas-Henderson-Paradise, NV had the highest percentage of homes in negative equity at 19.9 percent, followed by Miami-Miami Beach-Kendall, FL (19.6 percent), Chicago-Naperville-Arlington Heights, IL (16.7 percent), Washington-Arlington-Alexandria, DC-VA-MD-WV (10.9 percent) and New York-Jersey City-White Plains, NY-NJ (6 percent).
- Of the same 10 largest metropolitan areas, San Francisco-Redwood City-South San Francisco, CA had the highest percentage of homes in a positive equity position at 99.4 percent, followed by Houston-The Woodlands-Sugar Land, TX (98.3 percent), Denver-Aurora-Lakewood, CO (98.3 percent), Los Angeles-Long Beach-Glendale, CA (96.1 percent) and Boston, MA (94.3 percent).
- Of the total $299.5 billion in negative equity nationally, first liens without home equity loans accounted for $166 billion, or 55 percent, in aggregate negative equity, while first liens with home equity loans accounted for $134 billion, or 54 percent.
- Among underwater borrowers, approximately 2.4 million hold first liens without home equity loans. The average mortgage balance for this group of borrowers is $244,000 and the average underwater amount is $68,000.
- Approximately 1.6 million of all underwater borrowers hold both first and second liens. The average mortgage balance for this group of borrowers is $307,000 and the average underwater amount is $84,000.
- The bulk of positive equity for mortgaged residential properties is concentrated at the high end of the housing market. For example, 95 percent of homes valued at $200,000 or more have equity compared with 87 percent of homes valued at less than $200,000.
*Q4 2015 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.
Figure 4: Map of Negative Equity Share by State
State Table: CoreLogic Q1 2016 Negative Equity by State*
*This data only includes properties with a mortgage. Non-mortgaged properties are by definition not included.
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 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 data coverage is thin. These instances account for fewer than 5 percent of the total U.S. population.
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