As the nation’s real estate economy has evolved and slowly improved over the past two and a half years, the geography of almost every leading metric measuring the health of local housing markets has changed to reflect local economic trends and conditions except the one that many economists and policy makers consider to be critical to the national economic recovery.
Even though 1.3 million homeowners have reached positive equity since the end of last year and the national percentage of homeowners who owe more on their homes than they are worth declined from 24.1 to 23.7 percent in the second quarter (see One Homeowner Out of Eight Undervalues Their Home), the same eight states account for two out of three underwater mortgages in the nation.
California, Florida, Arizona, Nevada, Michigan, Illinois, Ohio and Georgia accounted for 67 percent of all underwater mortgages in the fourth quarter of 2009. In the second quarter of 2012, those eight states were still home to 67 percent of underwater mortgages, though the total number of underwater mortgages declined from 11,321,676 to 10,746,556, according to an analysis of CoreLogic data. The eight states accounted for 42 to 42.5 percent of the nation’s mortgages during that period.
Negative equity contributes to high rates of mortgage defaults, reduced demand for home purchases
The stubborn concentration of negative equity in a minority of states over nearly three years suggests that the impact of negative equity is felt much more at a regional or local level and that causes may be more local or regional in nature than national, even
The importance of housing debt to the national economy was the subject of a report in the Washington Post yesterday regarding a 2011 White House meeting where several leading economists urged the Administration to take additional steps to reduce housing debt. The economist argued that huge debts resulting from declining home values caused consumers to cut back dramatically on buying cars, appliances, furniture and groceries. The more they owed, the less they spent, whereas people with little debt hardly slowed spending at all. The economists said the president could have significantly accelerated the slow economic recovery if he had better addressed the overhang of mortgage debt left when housing prices collapsed..
In the second quarter of 2012, the most recent CoreLogic data available, Nevada had the highest percentage of mortgaged properties in negative equity at 59 percent, followed by Florida (43 percent), Arizona (40 percent), Georgia (36 percent) and Michigan (33 percent). These top five states combined account for 34.1 percent of the total amount of negative equity in the U.S.
In the fourth quarter of 2009, the first of CoreLogic’s quarterly negative equity reports, negative equity was also concentrated in five states: Nevada, which had the highest percentage negative equity with 70 percent of all of its mortgaged properties underwater, followed by Arizona (51 percent), Florida (48 percent), Michigan (39 percent) and California (35 percent). Among the top five states, the average negative equity share was 42 percent, compared to 15 percent for the remaining 45 states. In numerical terms, California (2.4 million) and Florida (2.2 million) had the largest number of negative equity mortgages accounting for 4.6 million, or 41 percent, of all negative equity loans.
The bulk of negative equity is also concentrated in the low end of the housing market. For example, for low-to-mid value homes (less than $200,000), the negative equity share was 32 percent in the second quarter of this year, almost twice the 17 percent for borrowers with home values greater than $200,000.