Affordable Homes Three Times More Likely to be Financially Underwater than Expensive Homes

Affordable Homes Three Times More Likely to be Financially Underwater than Expensive Homes

SEATTLE, WA - The affordable homes most sought after by first-time homebuyers are being kept off the market in part because nationally, those homes are almost three times more likely to be underwater than the most expensive homes, according to the first quarter Zillow® Negative Equity Reporti. The national negative equity rate fell to 18.8 percent in the first quarter, with almost 9.7 million American homeowners with a mortgage underwater, owing more on their mortgage than their home is worth.

Among all homes with a mortgage nationwide, roughly one in three (30.2 percent) priced within the bottom third of home values were underwater in the first quarter, compared to 18.1 percent of homes in the middle third and 10.7 percent of homes in the top thirdii. It is very difficult for an underwater homeowner to list their home for sale without engaging in a short sale or bringing cash to the closing table, which is a major contributor to inventory shortages across much of the country, even as negative equity slowly recedes.

More than one-third of homeowners with a mortgage (36.9 percent) are effectively underwater, unable to sell their homes for enough profit to comfortably meet expenses related to selling a home and afford a down payment on a new one.

"The unfortunate reality is that housing markets look to be swimming with underwater borrowers for years to come," said Zillow Chief Economist Dr. Stan Humphries.  "It's hard to overstate just how much of a drag on the housing market negative equity really is, especially at the lower end of the market, which represents those homes typically most affordable for first-time buyers. Negative equity constrains inventory, which helps drive home values higher, which in turn makes those homes that are available that much less affordable."

Negative equity has fallen for eight consecutive quarters, but fell at its lowest pace in almost two years in the first quarter as home value growth slowed. Negative equity fell from 25.4 percent in the first quarter of 2013 and 19.4 percent in the fourth quarter, while the pace of annual home value growth slowed to 5.7 percent in the first quarter, from 6.6 percent at the end of the fourth quarter. Looking ahead, the national negative equity rate is expected to fall to 17 percent of all homeowners with a mortgage by the first quarter of 2015, according to the Zillow Negative Equity Forecast.

At the end of the first quarter, the number of homes foreclosed nationwide fell to 4.9 homes per 10,000, from 5.4 homes per 10,000 at the same time last year. As foreclosure activity continues to fall, the pace of negative equity improvement will also slow, as homeowners' debt is wiped from lenders' books following foreclosure.

These results are from the first quarter edition of the Zillow Negative Equity Report, which looks at current outstanding loan amounts for individual owner-occupied homes and compares them to those homes' current estimated values. Loan data is provided by TransUnion®, a global leader in credit and information management. This is the only report that uses current outstanding loan balances on all mortgages when calculating negative equity. Other reports estimate current outstanding loan balance based on the most recent loan on a property (i.e., the original loan amount at time of purchase or refinance).

Source: Zillow / #Housing #Economy

More Stories

Get The Newsletter

Get The Newsletter

The latest multifamily industry news delivered to your inbox.