SOURCE: RealtyTrac

RealtyTrac

October 23, 2014 00:01 ET

8.1 Million U.S. Residential Properties Seriously Underwater in Third Quarter, Lowest Level in Two Years

15 Percent of U.S. Properties Seriously Underwater, Representing $1.4 Trillion in Negative Equity; Properties in the Foreclosure Process With Positive Equity Increase to 38 Percent

IRVINE, CA--(Marketwired - Oct 23, 2014) - RealtyTrac® (www.realtytrac.com), the nation's leading source for comprehensive housing data, today released its U.S. Home Equity & Underwater Report for the third quarter of 2014, which shows that 8.1 million U.S. residential properties were seriously underwater -- where the combined loan amount secured by the property is at least 25 percent higher than the property's estimated market value -- representing 15 percent of all properties with a mortgage and an estimated $1.4 trillion in negative equity.

The third quarter negative equity numbers were down to the lowest level since RealtyTrac began reporting negative equity in the first quarter of 2012. In the previous quarter, 9.1 million residential properties representing 17 percent of all properties with a mortgage were seriously underwater, and in the third quarter of 2013 10.7 million residential properties representing 23 percent of all properties with a mortgage were seriously underwater. The recent peak in negative equity was in the second quarter of 2012, when 12.8 million U.S. residential properties representing 29 percent of all properties with a mortgage were seriously underwater.

The universe of equity-rich properties -- those with at least 50 percent equity -- grew to 10.8 million representing 20 percent of all properties with a mortgage in the third quarter, up from 9.9 million representing 19 percent of all properties with a mortgage in the second quarter of 2014. Collectively these equity rich homeowners have an estimated $2.9 trillion in positive equity.

Another 8.5 million properties were on the verge of resurfacing in the third quarter, with between 10 percent negative equity and 10 percent positive equity. This segment represented 16 percent of all properties with a mortgage in the third quarter. That was down from 8.7 million properties representing 17 percent of all properties with a mortgage in the second quarter of 2014.

Corresponding to the decrease in overall properties seriously underwater fewer distressed properties had negative equity in the third quarter, with 39 percent of all properties in the foreclosure process seriously underwater -- down from 44 percent in the second quarter of 2014 and down from 56 percent in the third quarter of 2013. Conversely, the share of foreclosures with positive equity increased to 38 percent in the third quarter, up from 34 percent in the second quarter of 2014.

"The decrease in underwater properties is promising but the estimated $1.4 trillion in negative equity means that the flood waters are not receding as quickly as they were before, corresponding to slowing home price appreciation," said Daren Blomquist, vice president at RealtyTrac. "Slower price appreciation means the 8 million homeowners seriously underwater could still have a long road back to positive equity.

"We wanted to paint a picture of the typical seriously underwater homeowner and what we found was that homeowners who bought or refinanced during the housing bubble (2004 to 2008), own a home worth less than $200,000, live in the Sun Belt or Rust Belt and live in a Democratic Congressional District were more likely to be seriously underwater," Blomquist noted. "On the other end, the highest percentages of equity rich homeowners were those who bought or refinanced between 1994 and 1998, those with properties valued at $500,000 or more, live in NY, CA, DC and these folks also tend to live in Democratic Congressional districts."

Nevada, Florida and Illinois lead the nation with the most markets with negative equity for the fourth consecutive quarter
States with the highest percentage of residential properties seriously underwater in the third quarter of 2014 were Nevada (31 percent), Florida (28 percent), Illinois (26 percent), Michigan (25 percent), and Rhode Island (22 percent).

Major metropolitan statistical areas (population 500,000 or more) with the highest percentage of residential properties seriously underwater were Las Vegas (34 percent), Lakeland, Fla., (34 percent), Palm Bay-Melbourne-Titusville, Fla., (31 percent), Orlando (30 percent), Jacksonville, Fla. (30 percent) and Detroit (29 percent).

Colorado, Montana and Oklahoma top the list for foreclosures with equity
States with the highest percentage of residential properties in the foreclosure process with positive equity were in Colorado (73 percent), Montana (71 percent), and Oklahoma (69 percent).

Major metro areas with more than 50 percent of properties in foreclosure with equity included Denver, Colo. (79 percent), Pittsburgh, Penn. (78 percent), Honolulu, Hawaii (77 percent), Baton Rouge, La. (74 percent) and San Jose, Calif. (73 percent).

Equity rich markets
Major metro areas with the highest percentage of equity rich properties -- those with at least 50 percent equity or more -- were San Jose, Calif. (45 percent), San Francisco, Calif. (41 percent), Honolulu, Hawaii (36 percent), Los Angeles, Calif. (32 percent), and New York, NY (31 percent).

Negative equity by loan date
The highest percentage of seriously underwater homeowners were those who bought or refinanced during the housing bubble, from 2004 - 2008. On the other end, the highest percentages of equity rich homeowners were those who bought or refinanced between 1994 and 1998.

   
Year Pct Seriously Underwater
2004 22%
2005 32%
2006 40%
2007 35%
2008 25%
2009 13%
2010 10%
2011 8%
2012 7%
2013 9%
2014 10%
   

Equity by estimated value
The highest percentages of seriously underwater homeowners were found at the low end, with homes worth under $200,000. Conversely, homes worth over $500,000 had the lowest percentage of seriously underwater loans and had the highest percentage of equity rich properties.

     
Estimated Value Pct Equity Rich Pct Seriously Underwater
Less than $50,000 10% 55%
$50,000 - $100,000 13% 34%
$100,000 - $200,000 15% 17%
$200,000 - $300,000 19% 11%
$300,000 - $400,000 23% 8%
$400,000 - $500,000 26% 7%
$500,000 - $750,000 31% 6%
$750,000 - $1M 39% 5%
$1M - $2M 44% 6%
$2M - $5M 48% 9%
     

Financial institutions with the highest amount of homes seriously underwater
As of the end of the third quarter there were 23,702 seriously underwater loans that were originated by Wells Fargo, the most of any loan originators. Following closely is the Bank of America with 20,784 seriously underwater loans. Rounding out the list are government entities (Fannie Mae, Freddie Mac and FHA combined) with 18,094, U.S. Bank with 17,932 and Chase with 13,664 seriously underwater loans.

         
Financial Institution   Number of Loans Seriously Underwater   Pct Seriously Underwater
Wells Fargo   23,702   21%
Bank of America   20,784   24%
Government   18,094   17%
US Bank   17,932   27%
Chase   13,664   20%
         

Equity by political party
With the election on the horizon RealtyTrac examined equity by political party and found that Democratic U.S. Congressional districts have a higher percentage of both extremes: negative equity and equity rich. The Republican districts tend to be in the middle of the spectrum when it comes to home equity.

     
Political Party Pct Equity Rich Pct Seriously Underwater
Democratic District 22% 16%
Republican District 18% 14%
     

Local broker perspective
"One in five Ohio homeowners with a mortgage are seriously underwater and many of these homeowners might not know that there are programs out there that can help," said Michael Mahon, executive vice president/broker of record at HER Realtors, covering the Cincinnati, Columbus and Dayton, Ohio markets. "Right now we are working with a company called Trinity Homes who offers a Home Trade-In program where they will actually purchase your current home when you buy one of their existing or new-build homes throughout Central Ohio. They pay you fair market value for your home and will purchase the property 'as is' regardless of the condition of the home or if the homeowner is underwater. This program can help homeowners get back on the right foot. You even continue to live in your current home until your new home is completed. Then, they set up back-to-back closings for your new and existing homes. It's the perfect program for those that are considering selling but are afraid they don't have enough equity or won't get a fair price."

Report methodology
The RealtyTrac U.S. Home Equity & Underwater report provides counts of residential properties based on several categories of equity -- or loan to value (LTV) -- at the state, metro and county level, along with the percentage of total residential properties with a mortgage that each equity category represents. The equity/LTV calculation is derived from a combination of record-level open loan data and record-level estimated property value data, and is also matched against record-level foreclosure data to determine foreclosure status for each equity/LTV category.

Definitions
Seriously underwater: Loan to value ratio of 125 percent or above, meaning the homeowner owed at least 25 percent more than the estimated market value of the property.

Equity rich: Loan to value ratio of 50 percent or lower, meaning the homeowner had at least 50 percent equity.

Foreclosures w/equity: Properties in some stage of the foreclosure process (default or scheduled for auction, not including bank-owned) where the loan to value ratio was 100 percent or lower.

Report License 
The RealtyTrac U.S. Foreclosure Market Report is the result of a proprietary evaluation of information compiled by RealtyTrac; the report and any of the information in whole or in part can only be quoted, copied, published, re-published, distributed and/or re-distributed or used in any manner if the user specifically references RealtyTrac as the source for said report and/or any of the information set forth within the report.

Data Licensing and Custom Report Order
Investors, businesses and government institutions can contact RealtyTrac to license bulk foreclosure and neighborhood data or purchase customized reports. For more information contact our Data Licensing Department at 800.462.5193 or datasales@realtytrac.com.

About RealtyTrac
RealtyTrac is a leading supplier of U.S. real estate data, with nationwide parcel-level records for more than 129 million U.S. parcels that include property characteristics, tax assessor data, sales and mortgage deed records, Automated Valuation Models (AVMs) and 20 million active and historical default, foreclosure auction and bank-owned properties. RealtyTrac's housing data and foreclosure reports are relied on by the Federal Reserve, U.S. Treasury Department, HUD, numerous state housing and banking departments, investment funds as well as millions of real estate professionals and consumers, to help evaluate housing trends and make informed decisions about real estate.