CoreLogic: Fewer Underwater Mortgages in 3Q. Foreclosure Sales Drove Reduction
"Negative
equity is a primary factor holding back the housing market and broader
economy," Mark Fleming, chief economist with CoreLogic said Monday as his
company released third quarter data showing continued improvement in the number of underwater mortgages. Fleming however warned that
price declines are apparently accelerating which could put a stop to or reverse
the recent positive trends in equity.
CoreLogic reported
that 10.8 million or 22.5 percent of all residential properties with mortgages
had negative equity at the end of the third quarter compared to 11.0 million or
23 percent at the end of the second quarter. This is the third consecutive
quarter in which negative equity declined. The company, however, attributed the
most recent decrease to foreclosures of underwater properties rather
than on an increase in home values. The
aggregate level of negative equity declined to $744 in the third quarter
compared to $800 billion at the end of 2009.
An additional 2.4
million properties or 5 percent of the total mortgages were termed
"near-negative" because their owners had less than 5 percent equity.
Negative equity
remains concentrated in five states. In Nevada,
which has led the nation in foreclosures for nearly two years, 67 percent of
mortgaged properties were "upside down" while in Arizona and Florida,
two other states that continue to be plagued with foreclosures, underwater
properties accounted for 49 and 46 percent of all mortgages respectively. In Michigan 38 percent of properties were in
negative territory and in California 32 percent. Alaska, about which little is usually heard
in such studies, had the largest improvement in negative equity with a drop of
1.8 percent. The other states showing
the most improvement were also the states that have been hardest hit; Nevada
improved by 1.6 percent, Arizona's negative equity dropped 1.4 percent, California
1.2 percent and Florida 0.9 percent.
In contrast to
states like Nevada and Arizona, seven states have negative equity in single
digits; Oklahoma has the lowest negative equity at 6 percent followed by New
York at 7 percent and Pennsylvania and North Dakota tied at 7.4 percent.
Not all homeowners
are upside down. The Northeast is a
particularly bright spot with more than half of New York residents having 50
percent or more equity in their homes followed by Hawaii at 43 percent,
Massachusetts, 40 percent; Connecticut, 39 percent; and Rhode Island 40
percent. Rhode Island displays what the
report calls a "barbell" distribution, appearing among the top 15 states
for both negative equity and for homeowners with more than 50 percent positive
equity. Several other states including
Massachusetts and New Jersey display the same barbell effect.
The report presents
a rather curious scenario under which it postulates that underwater homeowners
are not truly homeowners because their lack of equity means they are less
likely to maintain and improve their property and are more likely to behave
like renters. The Census says there was
a 66.9 percent homeownership rate in the third quarter, a decrease from the peak figure
of 69.2 percent in Q4 2004. CoreLogic
uses its premise to reduce the official homeownership rate to an effective rate
of 62.4 percent in 3Q by removing all homeowners with severely negative equity,
i.e. over 25 percent. This reduces the
"official" rate by 4.5 percentage points. If all negative equity properties are removed
from homeownership statistics, the effective rate becomes 56.6 percent - over 10
percent lower than the official rate.
CoreLogic's database
includes 48 million properties with a mortgage, about 85 percent of the
national total. State level data does
not include five states (Louisiana, Maine, Mississippi, South Dakota, Vermont,
and Wyoming) because of the small numbers of mortgage properties.