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Underwater Borrowers Are Still a Headwind for Housing

underwaterThe amount of underwater mortgages in the U.S. continues to decline, but is not fully helping the housing market on the road to recovery, particularity in many large markets that were heavily impacted during crisis times.

The negative equity rate nationwide fell in the third quarter to 13.4 percent of underwater borrowers, down from last quarter's percentage of 14.4. One year ago, 16.9 percent of homeowners owed more on their home than it's worth, Zillow's Negative Equity Report showed.

According to the report, nearly one million homeowners were able to come out of negative equity in the third quarter. This will allow them to sell or refinance their homes prior to the expected interest rate hike later this month.

"Negative equity has become almost an afterthought in a handful of the nation's hottest markets, but is holding back the recovery in dozens of large markets nationwide," said Dr. Svenja Gudell, Zillow's Chief Economist.

She added, "Despite steady declines in negative equity, many cities are still facing tight inventory, especially among entry-level homes. Those homes that are available are often not in demand and stay on the market for a long time. This can be extremely frustrating for buyers and sellers alike, as they come face to face with the difficult side effects of negative equity."

Zillow noted that negative equity rates are usually close to 2-5 percent, and today's rate is a haunting reminder of the housing crash and the recovery that has yet to happen in some markets.

Las Vegas, Nevada has had the highest negative rate in the nation for nearly five years, with 22 percent of underwater homeowners and 19 percent effectively underwater (less than 20 percent equity in their homes).

Kansas City, Missouri and Cleveland, Ohio followed with negative equity rates of 16.6 percent and 16.8 percent, respectively, the data found.

The report showed that San Francisco, California and San Jose, California are the only cities where less than 5 percent of homeowner owe more on their home than it's worth.

"Negative equity affects individual homeowners, but markets with high negative equity rates tend to have fewer homes for sale, especially lower-priced homes favored by first-time homebuyers," the report stated. "In markets with a lot of negative equity, homes generally take longer to sell than in other places."

Smallest Share of Underwater Homeowners

San Jose, California – 3.0 percent
San Francisco, California – 4.7 percent
Denver, Colorado – 5.5 percent
Dallas-Fort Worth, Texas – 5.8 percent
Portland, Oregon – 6.2 percent

Largest Share of Underwater Homeowners

Las Vegas, Nevada – 22.1 percent
Chicago, Illinois – 20.6 percent
Atlanta, Georgia – 18.6 percent
St. Louis, Missouri – 17.6 percent
Baltimore, Maryland – 16.9 percent

Click here to view the full report.

About Author: Xhevrije West

Xhevrije West is a talented writer and editor based in Dallas, Texas. She has worked for a number of publications including The Syracuse New Times, Dallas Flow Magazine, and Bellwethr Magazine. She completed her Bachelors at Alcorn State University and went on to complete her Masters at Syracuse University.
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