Negative Equity Remains High

SEATTLE-The national negative equity rate fell in the first quarter, to 25.4% of all homeowners with a mortgage, according to the first quarter Zillow Negative Equity Report. But another 18.2%, while not technically underwater, likely do not have enough equity to afford to move.
Slightly more than 13 million homeowners with a mortgage were in negative equity, or underwater, at the end of the first quarter, owing more on their mortgage than their home is worth. But when including homeowners with less than 20% home equity, the “effective” negative equity rate at the end of the first quarter was 43.6%, or a total of 22.3 million homeowners. These homeowners likely cannot afford a down payment for a new home, tying them to their current homes and contributing to inventory shortages.
A homeowner technically reaches positive equity as soon as the market value of their home exceeds their outstanding loan balance. But listing a home for sale and buying a new one generally requires equity of 20% or more to comfortably meet related costs.

“Reaching positive equity, even barely, is an important milestone. But things like real estate agents' fees and a down payment for the next home traditionally come out of the proceeds from the prior home's sale. Without enough equity, these costs will instead have to come out of a homeowner's pocket, leaving many still stuck,” said Zillow chief economist Stan Humphries. “Looking at the effective negative equity rate could explain why recent, healthy declines in the number of underwater borrowers haven't yet translated into more homes for sale. The only cure is patience, as rising home values continue to build equity to the point where more homeowners can realistically sell.”

Among the 30 largest metro areas covered by Zillow, those with the highest effective negative equity rate, including homeowners with 20 percent equity or less, include Las Vegas (71.5%); Atlanta (64.1 %); and Riverside, CA (59.7%).

The first quarter Zillow Negative Equity Forecast predicts the negative equity rate among all homeowners with a mortgage will fall to 23.5% by the first quarter of 2014, lifting more than 1.4 million additional homeowners nationwide into positive equity. Of the 30 largest metro areas, the majority of these newly freed homeowners are anticipated to come from: Los Angeles (94,642 homeowners); Riverside (74,693 homeowners); and Phoenix (51,580 homeowners).

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).