Seriously Underwater Properties Creep Up in 1Q

ATTOM Data Solutions, Irvine, Calif., said seriously underwater U.S. properties rose slightly in the first quarter, reflecting parts of the country where negative equity remains “stubbornly high.”

The company’s Q1 2017 U.S. Home Equity & Underwater report said 5.5 million properties were “seriously underwater–where the combined loan amount secured by the property was at least 25 percent higher than the property’s estimated market value–up from 5.4 million in the fourth quarter, but down by more than 1.2 million from the 6.7 million seriously underwater properties reported a year ago.

The 5.5 million seriously underwater properties at the end of Q1 2017 represented 9.7 percent of all U.S. properties with a mortgage, up from 9.6 percent in the fourth quarter but down from 12.0 percent a year ago.

The report also noted the number of equity-rich properties increased by 1.4 million from a year ago, boosted by higher home prices, although than number fell slightly from the fourth quarter.

“While negative equity continued to trend steadily downward in the first quarter, it remains stubbornly high in often-overlooked pockets of the housing market,” said Daren Blomquist, senior vice president with ATTOM Data Solutions. “For example, we continue to see one in five properties seriously underwater in several Rust Belt cities along with Las Vegas and central Florida. Additionally, close to one-third of homes valued below $100,000 are still seriously underwater.”

Among 88 metropolitan statistical areas with a population of at least 500,000, those with the biggest quarterly increase in the number of seriously underwater homes were Baltimore (up 26,974); Philadelphia (up 8,919); McAllen, Texas (up 7,746); Cleveland (up 7,631); and St. Louis (up 6,844). However, all five markets saw seriously underwater properties decline from a year ago. Half of the top 10 metros with the biggest quarterly increase in the number of seriously underwater properties also saw an annual increase in the share of distressed sales in the first quarter, including Philadelphia; Cleveland; Columbus, Ohio; New York; and Baton Rouge, La.

“Several of the cities with the biggest quarterly increases in underwater properties saw a corresponding increase in share of distressed sales in the first quarter, creating a drag on overall home values, and in the case of Baton Rouge that increase in distressed sales may be in part attributable to the catastrophic flooding there in August 2016,” Blomquist noted. “Across the country, the share of seriously underwater homes was higher in high-risk flood zones.”

The report said states with the highest share of seriously underwater properties as of the end of the first quarter were Nevada (18.9 percent); Ohio (17.1 percent); Illinois (16.5 percent); Louisiana (16.4 percent); and Missouri (14.5 percent).

Metro areas with the highest share of seriously underwater properties as of the end of the first quarter were Cleveland (22.9 percent); Las Vegas (22.1 percent); Akron, Ohio (20.3 percent); Dayton, Ohio (20.3 percent); and Toledo, Ohio (20.0 percent).

The report also said equity-rich properties grew to more than 13.7 million from a year ago, representing 24.3 percent of all U.S. properties with a mortgage. That was down from nearly 13.9 million equity rich properties in the fourth quarter but up by nearly 1.4 million from a year ago, when there 12.4 million equity rich properties representing 22.0 percent of all properties with a mortgage.

States with the highest share of equity-rich properties were Hawaii (38.4 percent); California (35.8 percent); New York (34.6 percent); Vermont (32.8 percent); and Oregon (31.3 percent).

Metro areas with the highest share of equity rich properties were San Jose, Calif. (51.3 percent); San Francisco (46.6 percent); Honolulu (39.9 percent); Los Angeles (39.1 percent); and Pittsburgh, Pa. (34.2 percent);

The report listed characteristics of seriously underwater U.S. properties as of the end of 2016:

–19.5 percent of non-owner occupied (investment) properties with a mortgage were underwater as of the end of the first quarter compared to only 7.0 percent of owner-occupied properties.

–30.8 percent of properties with an estimated market value of $100,000 or less were seriously underwater compared to a seriously underwater rate of 9.3 percent for properties valued between $100,000 and $300,000; 5.0 percent for properties valued between $300,000 and $750,000; and 4.8 percent of properties valued above $750,000.

–12.5 percent of properties in high-risk flood zones were seriously underwater while 9.6 percent of properties not in high-risk flood zones were seriously underwater.

–28.0 percent of all properties secured by loans originated in 2006 were seriously underwater at the end of 2016, the highest share of seriously underwater of any loan vintage in the last 20 years, followed by 2007 vintage (23.8 percent seriously underwater) and 2005 vintage (21.7 percent seriously underwater).

For equity-rich properties:

–26.7 percent of non-owner occupied (investment) properties with a mortgage were equity rich as of the end of the first quarter, compared to 23.6 percent of owner-occupied properties.

–16.4 percent of properties located in high-risk flood zones were equity rich as of the end of 2016, compared to 13.0 percent of properties not located in high-risk flood zones.

–43.7 percent of properties with an estimated market value over $750,000 were equity rich, compared to an equity rich rate of 29.5 percent for properties valued between $300,000 and $750,000; 20.8 percent for properties valued between $100,000 and $300,000; and 15.4 percent for properties valued up to $100,000.

–47.0 percent of all properties secured by 1998 vintage loans were equity rich at the end of 2016, the highest share of equity rich of any loan vintage in the last 20 years, followed by 1999 vintage (44.5 percent equity rich) and 2000 vintage (40.6 percent equity rich).