Amid talk of a housing recovery, the latest figures show that 22% of all homes with a mortgage are underwater. That is 19,763,550 US homes are worth less than the mortgages on them. Another 2,306,978 (4.8% of mortgages) are within 5% of being worthless according CoreLogic. They track over 48 million mortgages in the US, roughly 80%.
The eight states with the most under-water homes are:
- California (1,917,721)
- Florida (1,768,532)
- Georgia (574,490)
- Illinois (566,910)
- Ohio (511,426)
- Arizona (509,184)
- Michigan (435,700)
- New Jersey (375,790)
On a percentage basis, the worst eight states are:
- Nevada (56.92%)
- Florida (42.07%)
- Arizona (38.55%)
- Georgia (35.58%)
- Michigan (31.98%)
- California (28.87%)
- Mississippi (25.41%)
- Illinois (25.40%)
The major metro areas with the most negative equity homes are:
- Atlanta (485,802)
- Chicago (451,250)
- Phoenix (370,493)
- Los Angeles (336,183)
- Riverside (CA)-San Bernadino-Ontario (333,224)
- Tampa-St. Petersburg (287,217)
- Las Vegas (247,314)
- Washington, D.C. (241,311)
Negative equity continues to restrain buyers and sellers alike. Here’s how negative equity remains an ugly chain holding everything back:
- Borrowers with negative equity are having problems selling their homes because they can’t pay off their mortgages if and when they sell.
- As such, buyers are not willing to pay more than they have to for a home.
- Even if the buyer were willing to pay more for a house, getting an appraisal to justify the purchase price is difficult, if not impossible.
- This means if buyers want a house, they may need to come up with a larger down payment than they may have.
- For current owners to become buyers themselves, negative equity could mean mortgage defaults and other credit issues that then makes it tougher for them to be buyers.
The potential winners might be first-time home buyers. Their greatest opportunities will be in short-sales and of foreclosed properties, which are more complicated than making a traditional offer on a traditional property. However, the purchased home still has to appraise out for the buyer to get a mortgage.
The good news: CoreLogic reported that despite the large negative equity numbers, the average loan-to-value on US homes with mortgages is still 69%.
The Bottom Line: The moral is that those who keep their debt low can survive almost any financial crisis or bubble. (Now, if Congress and the President can only learn this.)