Negative equity is something every homeowner hopes to avoid. Having negative equity can greatly complicate any plans you might have for selling or refinancing your home, not to mention make you feel like you’re wasting money on a home that isn’t worth what you’re putting into it. After the housing crisis, tens of millions of homeowners found themselves in a negative equity situation. This was also referred to as being “upside down” or “underwater” in the mortgage. Thankfully, things are looking much better – with substantially fewer Americans facing harsh equity conditions and many more homes experiencing increases in value.
According to RealtyTrac’s U.S. Home Equity & Underwater Report for December 2013, a total of 9.3 million residential properties were “deeply underwater.” That equates to about 19 percent of all residential properties in the U.S. with a mortgage. While that figure sounds alarmingly large, the great news is it’s down considerably from the 10.7 million homeowners who were underwater just two months ago, according to RealtyTrac. If you go even further back to January 2013, when there were 10.9 million underwater properties in the U.S., or to May 2012 when the figure peaked at 12.8 million, you can see just how far we’ve come.
What is Negative Equity?
Negative equity is something that occurs when a homeowner experiences an increase in mortgage debt, a decline in home value, or both – resulting in a situation where they actually owe more money on their home than it’s currently worth. Sometimes homeowners may find themselves slightly underwater in their mortgage, which isn’t always a big deal and doesn’t take as much time and effort to correct. However, for homeowners who are considered deeply underwater, the idea of getting back to the surface can seem like an impossibility.
RealtyTrac defines a deeply underwater mortgage as one in which the loan-to-value ratio is 125 percent or more. In other words, a deeply underwater homeowner owes at least 25 percent more on the mortgage than the home is actually worth.
What the Experts Are Saying:
Daren Blomquist, vice president at RealtyTrac, had the following comment regarding the improvements in the nation’s negative equity:
“During the housing downturn, we saw a downward spiral of falling home prices resulting in rising negative equity, which in turn put millions of homeowners at higher risk for foreclosure when they encountered a trigger event such as job loss. Now we are seeing the reverse trend — rising home prices resulting in falling negative equity, which in turn is giving millions of homeowners a lifeline to avoid foreclosure when they encounter a trigger event.”
“On the other end of the spectrum, the percentage of equity-rich homeowners is nearing a tipping point that should result in a larger inventory of homes listed for sale and give the overall economy a nice shot in the arm in 2014.”
Michael Mahon, executive vice president/broker at HER Realtors had the following to say regarding the Cincinnati, Columbus and Dayton markets in Ohio:
“With available home inventory and interest rates at all-time lows, we experienced an increased rate of appreciation throughout the Ohio housing market during the fourth quarter of 2013. As we enter 2014, we are expecting the rate of appreciation to outpace what we have experienced the past two years, which will provide consumers the added value and reason to enter the home market in 2014.”
How is Texas Faring?
As of December 2013, 400,617 Texas homes were deeply underwater. This represents about 11 percent of all homes with a mortgage in the Lone Star State.
On the bright side, 523,902 Texas homes were in an equity-rich position, RealtyTrac reports. This figure equates to about 14 percent of Texas’ housing inventory.
Additional Findings from the Report
States with the highest percentage of residential properties deeply underwater in December were Nevada (38 percent), Florida (34 percent), Illinois (32 percent), Michigan (31 percent), Missouri (28 percent), and Ohio (28 percent).
States with the highest percentage of equity-rich residential properties were Hawaii (36 percent), New York (33 percent), California (26 percent), Montana (24 percent), and Maine (24 percent). The District of Columbia also posted an equity-rich rate of 24 percent.
States with the highest percentage of foreclosure properties with some equity included Oklahoma (62 percent), Colorado (54 percent), New York (52 percent), Texas (51 percent) and North Carolina (45 percent).