Number of US owners with negative equity reaches lowest point in over a decade

Vintage Aliso, a 202-unit complex for seniors near Aliso Viejo Parkway, has affordable housing for seniors at about half the median income for south Orange County. (Courtesy of USA Properties Fund, Inc.)

Less than 10% of home owners in the United States owe more on their mortgages than the value of their property, the first time it has been this low since the economic downturn.

It compares with more than 30% of owners being in negative equity when the housing bubble burst in the mid 2000s, according to the latest figures from real estate firm Zillow.

Overall 9.1% are underwater, that means that almost 4.5 million American home owners still owe more on their mortgages than their homes are worth and 15.4% have some equity in their home, but likely not enough to sell and comfortably use the proceeds for a down payment on another property.

Detroit has the largest share of deeply underwater home owners, who owe twice as much as their homes are worth at 25.4% in negative equity, about 22,000 owners.

The report explains that the typical US home lost more than a quarter of its value when the market crashed, sending millions of home owners into negative equity, when their homes’ values were lower than the balances on their mortgages.

Now, although national home values are higher than ever, and many owners who held on to their homes throughout the housing crisis have resurfaced on their mortgages. Still, despite the progress made as the negative equity rate falls, 4.4 million home owners remain underwater, and about 713,000 of them owe at least twice as much as their homes’ value.

It explains that negative equity acts as a drag on the overall housing market, extending beyond homeowners who are underwater. Low inventory is one of the main factors in driving home values higher, as demand from millennials, the largest group of home buyers, exceeds the available supply. It adds that underwater home owners are contributing to this shortage, holding on to their homes instead of selling for a loss.

‘For much of the country the Great Recession is an increasingly distant memory, the American economy is booming once again and markets are now shifting their gaze to future downturn risks,’ said Zillow senior economist Aaron Terrazas.

‘But scattered in neighbourhoods across the country, the legacy of the mid-2000s housing bubble and bust lingers among the millions of Americans still underwater on their mortgages, trapped in their homes with no easy options to regain equity other than waiting,’ he pointed out.

‘Their struggles mean there are fewer homes on the market for home buyers today. In corners of the country where home values have been stagnant in recent years, recent home buyers can easily fall underwater, particularly those who buy with small down payments,’ he added.


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