Negative Equity Report: Good News or Bad News?

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Negativity equity is an issue that can be an indication of many aspects of a real estate market.  Zillow keeps track of such things and while many question the accuracy of some of Zillow’s reports (such as their Zestimates), the Negative Equity report seems accurate.

According to the most recent Zillow  “Negative Equity Report” , there are 12.2 million homeowners who are still underwater on their properties. This equates to nearly a quarter (23.8 percent) of all homeowners with a mortgage and 16.7 percent of all homeowners with and without a mortgage. Zillow predicts that by the end of the second quarter of 2014, the negative equity rate will have fallen to 20.9 percent and 1.9 million more homeowners will once again be in positive territory. “Widespread rising home values during the past year have helped…many homeowners who were only modestly underwater to come up for air,” said Zillow chief economist Stan Humphries. However, he added, “for those homeowners who are deeply underwater…there is still a long row to how.”

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More than half of all underwater borrowers (57 percent) are 20 percent or more underwater. Furthermore, one in seven (13.4 percent) of all underwater borrowers owe more than twice what their home is worth. If home values rise, as Zillow predicts, 4.8 percent in the next year, it will take homeowners who are 20 percent underwater four years to reach positive equity and homeowners who are more deeply underwater years longer -  particularly given that most analysts agree that home appreciation rates are due to slow by the end of 2014. “Negative equity will be a factor in…markets for years to come,” said Humphries.

Negative equity can lead to strategic defaults, short sales, loan modification applications, bankruptcies and many other events that can affect a real estate market. All in all, this report is lower than I anticipated so it seems like good news.


Paddy Deighan J.D. Ph.D

Comments (1)

Steven Cook
No Longer Processing Mortgages. - Tacoma, WA

Paddy -- thank you for sharing this information.  The one "wild card" I didn't see mentioned was how much the real estate economy may be slowed by the ending of "quantitative easing" by the Federal Reserve in the relatively near term.

Sep 08, 2013 04:32 PM