US Real Estate: Negative Equity Ratio Improving

US Real Estate: Negative Equity Ratio Improving

 As the housing market continues to recover, homeowners who are underwater on their mortgages are increasingly concentrated in the Rust Belt, while West Coast homeowners are less likely to be in negative equity, according to the first quarter Zillow® Negative Equity Reporti.

Nationally, 12.7 percent of homeowners with a mortgage were in negative equity, meaning they owed more on their mortgage than their homes were worth. U.S. negative equity is down from a peak level of 31.4 percent in the first quarter of 2012.

For years, Las Vegas has been the prime example of the housing bubble and bust, with nearly three-quarters of mortgaged homeowners underwater when the market bottomed out in in the first quarter of 2012. But Chicago now has the highest negative equity rate among large U.S. markets, surpassing Las Vegas in the first quarter of 2016.  At its worst, Chicago had a 41.1 percent rate of negative equity, but its recovery has been sluggish and the negative equity rate has declined more slowly than elsewhere.

As the housing market recovered, the distribution of underwater homeowners across the country has shifted. In the first quarter of 2012, the West Coast, Southeast, and Rust Belt regionsii had a disproportionately greater share of underwater homeowners. For example, the Southeast had 20.4 percent of homes with a mortgage, but 24.9 percent of homes in negative equity.

Four years later, the West Coast, home to hot markets like the Bay Area, Portland, and Seattle, has only 10.2 percent of homeowners with negative equity, but 15.2 percent of all mortgaged homeowners. The imbalance was worst in the Rust Belt region, which includes Wisconsin, Illinois, Indiana, Michigan and Ohio, and which had an unevenly large share of underwater homeowners.

“When the housing bubble burst, the West Coast had more than its fair share of underwater homeowners,” said Zillow Chief Economist Dr. Svenja Gudell. “But the strong local economy and job markets have significantly helped these housing markets recover, and several are now more expensive than they were during the housing bubble. Other parts of the country didn’t get those same benefits, and until market fundamentals improve, homeowners and buyers in these areas will be facing disproportionately higher levels of negative equity as they navigate the housing market.”

Four of the 10 metros with the highest rates of negative equity are in the Rust Belt. Meanwhile, the West Coast is home to five of the 10 metros with the lowest levels of negative equity.

Metropolitan Area

2012 Q1
Negative
Equity Rate

2015 Q4
Negative
Equity Rate

2016 Q1
Negative
Equity Rate

United States

31.4%

13.1%

12.7%

New York/Northern New Jersey

21.3%

11.4%

11.3%

Los Angeles-Long Beach-Anaheim, CA

30.0%

6.9%

6.6%

Chicago, IL

41.1%

20.5%

20.3%

Dallas-Fort Worth, TX

30.7%

5.8%

5.4%

Philadelphia, PA

25.0%

15.0%

14.9%

Houston, TX

30.2%

6.6%

6.7%

Washington, DC

32.4%

15.3%

15.1%

Miami-Fort Lauderdale, FL

46.4%

13.7%

13.1%

Atlanta, GA

55.2%

17.6%

16.6%

Boston, MA

22.0%

7.1%

7.0%

San Francisco, CA

30.7%

4.4%

4.4%

Detroit, MI

49.8%

16.1%

15.4%

Riverside, CA

53.4%

13.5%

13.2%

Phoenix, AZ

55.5%

15.2%

14.1%

Seattle, WA

39.6%

9.5%

9.2%

Minneapolis-St Paul, MN

39.9%

10.5%

9.8%

San Diego, CA

35.6%

7.9%

7.5%

St. Louis, MO

30.7%

17.0%

16.0%

Tampa, FL

48.3%

14.7%

13.8%

Baltimore, MD

31.4%

17.4%

17.2%

Denver, CO

29.0%

5.5%

5.5%

Pittsburgh, PA

16.7%

9.6%

9.5%

Portland, OR

34.3%

5.6%

5.2%

Charlotte, NC

36.6%

10.7%

10.2%

Sacramento, CA

51.2%

10.4%

10.1%

San Antonio, TX

20.7%

11.0%

11.5%

Orlando, FL

53.9%

15.4%

14.8%

Cincinnati, OH

31.5%

13.7%

13.3%

Cleveland, OH

33.9%

17.1%

16.6%

Kansas City, MO

36.7%

16.4%

15.5%

Las Vegas, NV

71.0%

20.9%

20.2%

Columbus, OH

34.2%

11.7%

11.2%

Indianapolis, IN

28.8%

14.6%

14.9%

San Jose, CA

22.7%

2.8%

2.8%

Austin, TX

25.0%

7.1%

6.9%

Zillow

Zillow® is the leading real estate and rental marketplace dedicated to empowering consumers with data, inspiration and knowledge around the place they call home, and connecting them with the best local professionals who can help. In addition, Zillow operates an industry-leading economics and analytics bureau led by Zillow’s Chief Economist Dr. Svenja Gudell. Dr. Gudell and her team of economists and data analysts produce extensive housing data and research covering more than 450 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. Zillow also sponsors the bi-annual Zillow Housing Confidence Index (ZHCI) which measures consumer confidence in local housing markets, both currently and over time. Launched in 2006, Zillow is owned and operated by Zillow Group (NASDAQ: Z and ZG), and headquartered in Seattle.

Zillow is a registered trademark of Zillow, Inc.

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Shayne Heffernan Funds Manager at HEFFX holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.

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