Paid off, paid down and underwater – a survey of equity in U.S. real estate (Part 2)

Posted: September 28, 2016 at 10:57 am

South and North pole and all things relatedPaid off, paid down and underwater – a survey of equity in U.S. real estate

The real estate industry, like the economy, has made huge strides since the dark days of bank closings, mass unemployment, and foreclosure signs plaguing once-thriving neighborhoods. In fact, we things are looking absolutely rosy for the housing market again but looking deeper, the collateral damage from the Great Recession remains, with a huge number of homeowners still seriously underwater in equity. But just how far have we recovered? Is that reason for concern? And how does it measure up with historical averages?

In part one of this blog we examined the data on homes and mortgages that were paid off or paid down. Today, we’ll look at facts and statistics on underwater homes in the U.S.

Underwater homes:

At the end of Q1 in 2016, there were 6.7 million U.S. homes and properties that were seriously underwater, meaning they owed way more than the home was worth.

To put the magnitude of that number in perspective, that’s 12 percent of all properties with a mortgage (there are about 74 million owner-occupied homes in the U.S.)

The number of seriously underwater properties decreased by 638,000 from a year ago in Q1 of 2015.

At that time there were 7.3 million seriously underwater properties, representing 13.2 percent of all properties with a mortgage.

That’s still far less than the peak of the mortgage crisis in Q2 of 2012, when a jaw-dropping 12.8 million homes were seriously underwater, representing 28.6 percent of all properties with a mortgage – or more than one in every four!

These states have the highest share of seriously underwater homes:

New Jersey (2.56 percent)

Illinois (1.07 percent)

Florida (0.67 percent)

Pennsylvania (0.64 percent)

Ohio (0.60 percent)

New York (0.60 percent)

Massachusetts (0.58 percent)

Nevada (0.54 percent)

Wisconsin (0.54 percent)

These are the metropolitan areas with the highest share of underwater properties:

Cleveland (27.1 percent)

Akron, Ohio (26.2 percent)

Las Vegas (26.2 percent)

Lakeland, Florida (23.8 percent)

Dayton, Ohio (23.7 percent)

For those political enthusiasts, 13% of all underwater homes are located in a Democrat-controlled congressional district, compared to 11% for Republican-controlled districts.

17% of condominiums are underwater in equity, compared to only 10% for single-family homes.

30% of all homes refinanced in 2005, 2006 or 2007 are seriously underwater, with loans adding up to 125% or more of that home’s current value.

However, only 4% of homes that are worth less than $100,000 are seriously underwater.

5.7% of homes worth a million dollars or more are seriously underwater.

Amazingly, 44% of properties (residential and commercial) owned by corporations or institutions are underwater.

59% of all seriously underwater homes are non-owner occupied homes, which tells us that people bought a lot of investment properties when the market was at its high point, and didn’t put enough money down.

In Q4 of 2013, the percentage of homeowners that were equity rich and seriously underwater were nearly identical at around 18 percent. But since then, equity rich shares have gained, reaching a current high of 22 percent in Q1 of 2016. IN that same period seriously underwater homeowners have dropped to 12 percent.

In 1952, Americans had 80 percent equity in their collective real estate holdings. That number dropped to about 60 percent equity at the high point of the market in 2006-7, and fell off a cliff to about only 37 percent by 2009.

The Metro areas with the lowest share of properties underwater were San Jose, California (1.8 percent); San Francisco (3.8 percent); Austin, Texas (4.0 percent); Portland, Oregon (4.1 percent); and Denver (4.3 percent).

Counter to the national trend, there were 35 out of 104 metro areas (34 percent) where the share of seriously underwater properties increased from a year ago, including New York (up 4 percent); Philadelphia (up 2 percent); Charlotte (up 17 percent); Cincinnati (up 4 percent); and Columbus, Ohio (up 18 percent).

17 percent of all condominiums are now underwater, as compared to only 10 percent of single-family homes.

30% of seriously underwater homeowners either purchased or refinanced in 2005, 2006 or 2007, which means they bought at the high point of the market and the home has dipped in value, or they refinanced at that high point and took cash out.

34 percent of homes worth less than $100,000 are seriously underwater, while only 5.7 percent of luxury homes worth $1 million or more are seriously underwater.

It’s not just homeowners who are in trouble with huge mortgages on devalued homes – an alarming 44 percent of properties owned by corporations or institutions are now underwater.

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