Number of Homes “underwater” Drops 13% Over the Past 3 Years

In December 2010, over half of the states in the U.S. had negative home equity shares above 15 percent – what is known as being “underwater”. While the national negative equity share was above 25 percent for much of 2010, some states even had negative equity shares above 50 percent. Those were Nevada (68.3 percent), Arizona (53.1 percent) and Florida (50.6 percent).

Fast-forward three years later and by December 2013, the share of homeowners nationally that were “underwater” had fallen to 13.3 percent, according to CoreLogic data.

The negative equity shares in all states have dropped significantly over the past three years with eight states now below 7.0 percent (a reasonable rate for a stable housing market). As evidenced in the chart below, only three states still have 20 percent or more of mortgages with negative equity (Nevada, Florida, and Arizona), although Ohio, Illinois, Michigan, Georgia, and Mississippi are not far behind.

underwater homes

The biggest driver for the overall improvement? Rising home prices.

In fact, house prices are up in all states over the last year.House prices in many Western states are rising rapidly, led by California, Nevada, Oregon and Arizona; there are also pockets of strong gains in the Midwest and East – including Georgia, Michigan and Florida. Price gains tend to be slower in the middle of the country where prices did not appreciate as much during the housing boom.

The good news is that home prices are anticipated to continue to rise modestly through 2018 – especially as acceleration in household formations spurs demand for homes. Based on the data from June, our outlook for home prices is outlined in the chart below.

home price index

Housing activity is always the most weather-dependent of all sectors of the economy, and it was hit hard by the worse-than-usual winter weather in 2014. Still, housing activity should rise over the next year as the job market improves and household formation picks up, although continued tight underwriting may keep it from rising sharply.

 

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The economic and market forecasts in this report reflect our opinion as of the date of this presentation/review and are subject to change without notice. These forecasts show a broad range of possible outcomes. Because they are subject to high levels of uncertainty, they may not reflect actual performance. Case studies and examples are for illustrative purposes only. We obtained certain information from sources deemed reliable, but we do not guarantee its accuracy, completeness or fairness.

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