A Million Fewer Underwater Homeowners

New Study Shows National Improvement but Regional Difficulties

A Million Fewer Underwater Homeowners
February 22, 2016

When the housing bubble burst, the subsequent crash in housing prices left millions of homeowners "underwater," owing more on their homes than they were worth. At the peak of the crisis in the first quarter of 2012, 31.4% of homeowners were underwater.

Fortunately, the situation has improved considerably since then. The recent rise in home prices has brought quite a few people out of a negative-equity situation. According to online real estate database company, Zillow, in the third quarter of 2015, the total number of underwater homeowners is a bit over six million, a decrease of approximately one million over the previous quarter.

Overall, 13.4% of the nation's homeowners are underwater, compared to 16.9% one year ago. If the definition of underwater is expanded to include those who are effectively trapped in their mortgage because they lack sufficient equity to sell their home and buy another ("effective negative equity"), the number climbs to 30%.

The situation may be improving overall, but some of the hardest-hit markets are having a particularly difficult time recovering from the housing crash. High levels of negative equity tend to distort local markets. It impacts both the supply and demand side by keeping people trapped in their homes, and it floods the market with foreclosed houses, often creating a mismatch of the available properties and the needs of local homebuyers. This makes it difficult to bring the housing market back into balance.

Las Vegas remains the most distressed area with respect to underwater homeowners. A bit more than 22% of homeowners in Vegas remain underwater. Chicago and Atlanta are right behind with 20.6% and 18.6% of underwater homeowners respectively. Only two major markets have fewer than 5% of underwater homeowners — the hot Bay Area markets of San Jose and San Francisco. For those of us who have forgotten what a normal housing market is like, there should be less than 5% of mortgages that are underwater.

In regional terms, greater numbers of underwater homeowners are found in the Southwest, the Southeast, and parts of the Midwest. The highest concentration of effective negative equity is found in the same areas. Las Vegas (41.3%) and Atlanta (37.9%) are still among the highest, but they are joined by Kansas City at 38.1%. San Jose and San Francisco are still two of the lowest at 7.7% and 11% respectively.

Zillow's graphs do not show any underwater or effectively underwater homeowners in two states: Vermont and Wyoming. Apparently, none of the counties has a percentage of underwater homeowners that is above the threshold of 1% or 2%.

Interested in local percentages for negative equity and effective negative equity? You can use the interactive maps on the Q3 2015 update located on the Zillow website to check out the situation in your area, or perhaps an area of interest for a future move.

Another map on the site illustrates the relationship between negative equity and inventory in metropolitan areas. Generally, higher negative equity in an area results in longer inventory times for the reasons discussed above. The national average for a home to be on the market is 78 days, but there are many metro areas with averages of over 100 days. Key West, Florida, tops the list at 138 days.

If you are not underwater or in effective negative equity, consider yourself fortunate. If you are still struggling to get above the mortgage waterline, consider yourself fortunate as well. The trends suggest that before long, you are more likely to escape negative equity. Hang in there.

Photo ©iStock.com/DigitalStorm

  Conversation   |   12 Comments

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irene | 02.17.16 @ 18:03
That's good news for sure, the recession was horrible on housing
Carla | 02.17.16 @ 18:03
We fall into the category of owing more than our home is worth. It is frustrating.
Sarah | 02.17.16 @ 18:03
well, I guess this is decent news. I don't even try to figure ours out anymore. I think it's cause I hate my house.
Elaine | 02.17.16 @ 18:04
Yikes that is kinda scary but glad to hear that it is getting better. So frustrating owing more than it is worth.
Bobbie | 02.17.16 @ 18:04
While I'm glad to hear this because I am looking to sell in a couple years, I wonder how skewed these numbers are given how many homes are still going into foreclosure, and how many of these homes are being snapped up by foreign investors.
Nancy | 02.17.16 @ 18:05
Some great news overall. I still have a few friends who are underwater and waiting out the market.
Steffanie | 02.17.16 @ 18:05
Luckily we owe less on our house than it's worth. Sounds like things are going in the right direction.
Erin | 02.17.16 @ 18:05
I'm glad this problem seems to be improving some, but those numbers are still crazy. I hope this continues to improve, but hopefully at a faster rate.
STOKES | 02.17.16 @ 18:06
I can't imagine being in this situation.
Alec | 02.17.16 @ 18:07
The housing market needs to pick back up a lot faster than it is! I'm sad to hear so many homeowners are still so far "underwater" and that the average listing prices for houses near my city in Florida is so long. Hopefully though if we move to Atlanta, we'll be able to get a good deal on a house if people are trying to sell quickly.
Sara | 02.17.16 @ 18:07
Good to hear that the housing market is doing better. Though we owe more than ours is worth right now. Hoping for things to get better.
Meredith L | 02.17.16 @ 18:10
Ah...well I'm still recovering from foreclosing on my home so I don't know that I'm the most unprejudiced opinion, but I guess this is good news in time for me to build up my credit and try again - a little smarter the second time around.
$commenter.renderDisplayableName() | 11.25.20 @ 05:20