Negative equity, often referred to as “underwater” or “upside down,” means that borrowers owe more on their mortgages than their homes are worth. Negative equity can occur because of a decline in 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 $398.4 billion for fourth quarter 2013, compared to $401.3 billion for third quarter 2013, a decrease of $2.9 billion.
Of the 42.7 million residential properties with positive equity, 10 million have less than 20-percent equity. Borrowers with less than 20-percent equity, referred to as “under-equitied,” may have a more difficult time obtaining new financing for their homes due to underwriting constraints. Under-equitied mortgages accounted for 21.1 percent of all residential properties with a mortgage nationwide in 2013, with more than 1.6 million residential properties at less than 5-percent equity, referred to as near-negative equity. Properties that are near-negative equity are considered at risk if home prices fall.
“The plight of the underwater borrower has improved dramatically since negative equity peaked in December 2009 when more than 12 million mortgaged homeowners were underwater,” said Mark Fleming, chief economist for CoreLogic. “Over the past four years, more than 5.5 million homeowners have regained equity, reducing their risk of foreclosure and unlocking pent-up supply in the housing market.”
“Stability and growth in the housing market are essential for a durable recovery of the U.S. economy,” said Anand Nallathambi, president and CEO of CoreLogic. “The rebound in home prices in 2013 helped 4 million property owners regain at least some positive equity in their largest asset—their home. We still have a long way to go to eliminate the negative equity overhang but significant progress is being made every day across most of the country.”
Highlights as of Q4 2013:
- Nevada had the highest percentage of mortgaged properties in negative equity at 30.4 percent, followed by Florida (28.1 percent), Arizona (21.5 percent), Ohio (19.0 percent) and Illinois (18.7 percent). These top five states combined account for 36.9 percent of negative equity in the United States.
- Of the 25 largest Core Based Statistical Areas (CBSAs) based on population, Orlando-Kissimmee-Sanford, Fla., had the highest percentage of mortgaged properties in negative equity at 31.5 percent, followed by Tampa-St. Petersburg-Clearwater, Fla. (30.4 percent), Phoenix-Mesa-Scottsdale, Ariz. (22.1 percent), Chicago-Naperville-Arlington Heights, Ill. (21.4 percent) and Atlanta-Sandy Springs-Roswell, Ga. (19.9 percent).
- Of the total $398 billion in negative equity, first liens without home equity loans accounted for $205 billion aggregate negative equity, while first liens with home equity loans accounted for $193 billion.
- Approximately 3.9 million upside-down borrowers hold first liens without home equity loans. The average mortgage balance for this group of borrowers is $219,000. The average underwater amount is $52,000.
- Approximately 2.6 million upside-down borrowers hold both first and second liens. The average mortgage balance for this group of borrowers is $293,000.The average underwater amount is $75,000.
- The bulk of home equity for mortgaged properties is concentrated at the high end of the housing market. For example, 92 percent of homes valued at greater than $200,000 have equity compared with 81 percent of homes valued at less than $200,000.
*Third quarter 2013 data was revised. Revisions with public records data are standard, and to ensure accuracy, CoreLogic incorporates the newly released public data to provide updated results.
Figure 1: National Home Equity Distribution by LTV Segment
Figure 2: Home Equity Share by State and Equity Cohorts
Figure 3: Near-Negative and Negative Equity Share by State
Map 1: Under-Equity and Negative Equity Share Combined by County Map
State Table: CoreLogic Q4 2013 Negative Equity by State*
*This data only includes properties with a mortgage. Non-mortgaged properties are by definition not included.
The amount of equity for each property is determined by comparing the estimated current value of the property against the mortgage debt outstanding (MDO). If the MDO is greater than the estimated value, then the property is determined to be in a negative equity position. If the estimated value is greater than the MDO, then the property is determined to be in a positive equity position. The data is first generated at the property level and aggregated to higher levels of geography. CoreLogic data includes 49 million properties with a mortgage, which accounts for more than 85 percent of all mortgages in the U.S. CoreLogic uses its public record data as the source of the MDO, which includes both first-mortgage liens and second liens, and is adjusted for amortization and home equity utilization in order to capture the true level of MDO for each property. The calculations are not based on sampling, but rather on the full data set to avoid potential adverse selection due to sampling. The current value of the property is estimated using a suite of proprietary CoreLogic valuation techniques, including valuation models and the CoreLogic Home Price Index (HPI). Only data for mortgaged residential properties that have a current estimated value is included. There are several states or jurisdictions where the public record, current value or mortgage coverage is thin. These instances account for fewer than 5 percent of the total U.S. population.
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CoreLogic (NYSE: CLGX) is a leading property information, analytics and services provider in the United States and Australia. The company’s combined data from public, contributory and proprietary sources includes over 3.3 billion records spanning more than 40 years, providing detailed coverage of property, mortgages and other encumbrances, consumer credit, tenancy, location, hazard risk and related performance information. The markets CoreLogic serves include real estate and mortgage finance, insurance, capital markets, transportation and government. CoreLogic delivers value to clients through unique data, analytics, workflow technology, advisory and managed services. Clients rely on CoreLogic to help identify and manage growth opportunities, improve performance and mitigate risk. Headquartered in Irvine, Calif., CoreLogic operates in seven countries. For more information, please visit www.corelogic.com.
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