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How Widespread Is Negative Equity?

underwater on mortgageWith the housing crisis now a decade in the rearview mirror, the share of homeowners who are underwater on their mortgage—owing more than their home is worth—has dropped below 10 percent for the first time since that crisis. According to Zillow’s Negative Equity Report [1], that share hit 9.1 percent in Q4 2017.

It’s not all good news, however. Zillow reports that 4.4 million American homeowners still remain underwater [2] on their mortgages. Of those, approximately 713,000 owe more than twice the value of their homes. In Detroit, Michigan, 25.4 percent of homeowners in negative equity still owe at least double the value of their home. That works out to around 22,000 homeowners.

Nor does this just affect the homeowners and lenders directly involved. As Zillow’s statement explains, “Negative equity acts as a drag on the overall housing market, extending beyond homeowners who are underwater. Low inventory is one of the main factors in driving home values higher, as demand from millennials—the largest group of homebuyers—exceeds the available supply. Underwater homeowners are contributing to this shortage, holding on to their homes instead of selling for a loss.”

On a nationwide scale, 15.4 percent of homeowners have some level of equity in their homes, “but likely not enough to sell and comfortably use the proceeds for a down payment [3] on another home,” according to Zillow. Factoring in those homeowners, the nationwide “effective” negative equity rate hits 24.6 percent.

Of the metros evaluated by Zillow, Virginia Beach, Virginia, features the highest negative equity rate at 16.7 percent, with an effective negative equity rate of 44.5 percent. Zillow reports that 49,944 homes in Virginia Beach are in negative equity.

"For much of the country the Great Recession [4] is an increasingly distant memory—the American economy is booming once again and markets are now shifting their gaze to future downturn risks," said Zillow Senior Economist Aaron Terrazas. "But scattered in neighborhoods across the country, the legacy of the mid-2000s housing bubble and bust lingers among the millions of Americans still underwater on their mortgages, trapped in their homes with no easy options to regain equity other than waiting. Their struggles mean there are fewer homes on the market for homebuyers today. In corners of the country where home values have been stagnant in recent years, recent homebuyers can easily fall underwater, particularly those who buy with small down payments."

To see the rest of Zillow’s data on nationwide negative equity, click here [5].