On the heels of a report from Zillow earlier in the week on the decline in negative equity in most regions comes fresh news that U.S. home owners are regaining some if not most of the wealth lost in the housing price crash and resulting recession.
CoreLogic® (NYSE: CLGX), Irvine, Calif., on Thursday reported that 268,000 home owners regained equity in the first quarter of the year, bringing the total number of mortgaged residential properties with equity to approximately 46.7 million, or 92%t of all mortgaged properties. Nationwide, home equity increased year over year by $762 billion in the quarter.
The total number of mortgaged residential properties with negative equity stood at 4 million, or 8% of all homes with a mortgage, down 6.2% quarter over quarter from 4.3 million homes, or 8.5%, in the fourth quarter of last year and a decrease of 21.5% year over year from 5.1 million homes compared with 2015's first quarter.
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 the quarter, falling approximately $11.8 billion, or 3.8%, from $311.3 billion in the prior quarter. On a year-over-year basis, the value of negative equity declined overall from $340 billion in 2015's first quarter, representing a decrease of 11.8% in 12 months.
Of the more than 50 million homes with a mortgage, approximately 9.1 million, or 18%, have less than 20% equity (under-equitied) and 1.1 million, or 2.2%, have less than 5% equity (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 home owners 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 home owners 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% year over year through the first quarter. If home values rise another 5% 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%, followed by Florida (15%), Illinois (14.4%), Rhode Island (13.3%) and Maryland (12.9%). Combined, these top five states account for 30.2% of negative equity in the U.S., but only 16.5% of outstanding mortgages.
- Texas had the highest percentage of homes with positive equity at 98.1%, followed by Alaska (97.8%), Hawaii (97.8%), Colorado (97.5%) and Washington (97.2%).
- 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%, followed by Miami-Miami Beach-Kendall, FL (19.6%), Chicago-Naperville-Arlington Heights, IL (16.7%), Washington-Arlington-Alexandria, DC-VA-MD-WV (10.9%) and New York-Jersey City-White Plains, NY-NJ (6%).
- 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%, followed by Houston-The Woodlands-Sugar Land, TX (98.3%), Denver-Aurora-Lakewood, CO (98.3%), Los Angeles-Long Beach-Glendale, CA (96.1%) and Boston, MA (94.3%).
- Of the total $299.5 billion in negative equity nationally, first liens without home equity loans accounted for $166 billion, or 55%, in aggregate negative equity, while first liens with home equity loans accounted for $134 billion, or 54%.
- 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% of homes valued at $200,000 or more have equity compared with 87% of homes valued at less than $200,000.