Zillow: Lower-Value Homes Emerging from Negative Equity

 Zillow Inc., Seattle, said home values in the bottom third of the market helped pull more homeowners out of negative equity in the second quarter, with condos more likely than houses to be underwater.  

The company’s Negative Equity Report said the rate of negative equity among mortgaged homeowners fell in the second quarter to 14.4 percent, the first time the rate has been below 15 percent since the real estate bubble burst. The report said the improvement was spurred by value growth in the least valuable third of the housing stock, which have been more likely to be underwater than other homes.  

The report said condos are more likely to be underwater than single-family homes, with nearly 20 percent of all condos with a mortgage upside down. Only three markets–Detroit, Memphis and Pittsburgh-show single-family homeowners more likely to be underwater than condo-owners.  

“If the overall negative equity rate is going to continue to fall, it will need to keep being driven down by improving health at the bottom end of the market,” said Zillow Chief Economist Svenja Gudell. “The least valuable homes really bore the brunt of negative equity during the recession, and that’s where most negative equity remains concentrated today. As more first-time buyers enter the market seeking these less expensive homes, home value growth at the bottom end could continue to outpace growth overall, which will be good news for millions of underwater homeowners in these homes.”  

Zillow and CoreLogic, Irvine, Calif., reported more than 15 million homeowners were upside down on their homes in the aftermath of the housing crisis. Since then, foreclosures, short sales and rapidly rising home values freed nearly half of those homeowners, leaving 7.4 million homeowners upside down at the end of the second quarter.  

Zillow said continued declines in overall negative equity rates were fueled in the first half of the year by strong appreciation for the least valuable third of homes. In the Atlanta market, for example, nearly 43 percent of the least valuable homes are in negative equity, while only 9.4 percent of high-end homes are underwater. Annual home value appreciation among the least valuable homes in Atlanta had slowed for 12 straight months through June. However, low-end homes have been appreciating annually more than more valuable homes. Since June 2014, annual appreciation in the bottom tier outpaced home value appreciation among all Atlanta homes, likely helping drive negative equity down there from 29 percent to 21 percent year-over-year.   

Among the 35 largest housing markets, Las Vegas, Chicago and Atlanta continued to have the highest rates of homeowners in negative equity. Condo-owners had the highest rates of negative equity in Las Vegas (36.7 percent), Chicago (32.6 percent) and Orlando (29.9 percent), while single-family homeowners had the highest rates in Las Vegas (23.8 percent), Atlanta (20.4 percent) and Chicago (19.2 percent).