Number of Properties With Equity Is Rising While Total of Underwater Homes Declines

underwater-fiveApproximately 254,000 properties regained equity in the first quarter of 2015, bringing the total of residential mortgaged properties with equity nationwide up to 44.9 million – approximately 90 percent of all mortgages, according to data released by CoreLogic on Tuesday.

While more than a quarter of a million homes regained equity during Q1, the percentage of residential properties with negative equity – commonly referred to as being “underwater” or “upside down,” meaning the borrower owes more on the mortgage than the home is worth – declined year-over-year by about 19.4 percent from 6.3 million homes in Q1 2014 down to 5.1 million homes in Q1 2015. The 5.1 million homes with negative equity in Q1 represent about 10.2 percent of all residential mortgages nationwide.

“Many homeowners are emerging from the negative equity trap, which bodes well for a continued recovery in the housing market,” said Anand Nallathambi, president and CEO of CoreLogic. “With the economy improving and homeowners building equity, albeit slowly, the potential exists for an increase in housing stock available for sale, which would ease the current imbalance in supply and demand. There are still about 5 million homeowners who are underwater and we estimate that a further 5 percent appreciation in home values across the U.S. would reduce the number of owners with negative equity by about one million.”

The national aggregate value of homes in negative equity for Q1 was $337.4 billion, which was a year-over-year decline of 13 percent from the $388 billion reported for Q1 2014, according to CoreLogic.

About 9.7 million residential properties out of the 50 million homes nationwide with a mortgage (19.4 percent) have less than 20 percent equity, which is commonly referred to as being “under-equitied.” About 2.7 percent of homes (1.3 million) have less than 5 percent equity, which is commonly referred to as having “near-negative equity.” Borrowers with near-negative equity are at risk of moving into negative equity if home prices drop, according to CoreLogic. Under-equitied borrowers may have a difficult time refinancing their homes or obtaining financing for another home purchase due to underwriting constraints, CoreLogic said.

“The CoreLogic Home Price Index for the U.S. was up 2.5 percent during the first quarter of 2015, which has improved the equity position of homeowners,” said Frank Nothaft, chief economist for CoreLogic. “About 90 percent of homeowners now have housing equity and, as a result, have experienced an increase in wealth, which can spur additional consumption and investment expenditures. The remaining 10 percent of owners with negative equity will find their home value rising while they continue to pay down principal on their amortizing mortgage loan.”

Among states in Q1, Nevada had the highest percentage of residential properties with a mortgage with negative equity with 23.1 percent. The top five states in that category – Nevada, Florida, Illinois, Arizona, and Rhode Island – accounted for about 31.4 percent of all the negative equity in the country, according to CoreLogic. The state with the highest percentage of residential mortgages in positive equity in Q1 was Texas at 97.7 percent.

Most of the positive equity is concentrated at the high end of the housing market, according to CoreLogic. About 94 percent of homes valued at more than $200,000 have equity as of Q1, compared to 85 percent for homes valued at less than $200,o00.

Among core-based statistical areas (CBSAs) in Q1, Tampa-St. Petersburg-Clearwater, Florida, had the highest percentage of residential properties with a mortgage in negative equity at 23.1 percent; the CBSA with the highest percentage of residential properties in positive equity was Houston-The Woodlands-Sugar Land, Texas, at 97.9 percent.

First liens without home equity loans accounted for more than half of the national total of $337 billion in negative equity for Q1 ($181 billion, or 53 percent). First liens with home equity loans accounted for about $157 billion (about 47 percent) of the negative equity total. According to CoreLogic, about 3.1 million underwater borrowers have first liens without home equity loans; those 3.1 million borrowers have an average mortgage balance of $229,000 and are an average of $58,000 underwater. Also according to CoreLogic, about 2 million underwater borrowers have both first and second liens; those 2 million borrows have an average mortgage balance of $295,000 and are underwater by an average of $78,000.

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