Recently the Q2 2015 U.S. Home Equity & Underwater Report was released, which shows that as of the end of the second quarter there were 7,443,580 U.S. residential properties that 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 13.3 percent of all properties with a mortgage.
The second quarter underwater numbers were up from 7,341,922 seriously underwater homes representing 13.2 percent of all homes with a mortgage in the previous quarter—making Q2 the second consecutive quarter with a slight increase in both the number and share of seriously underwater properties—but were down from 9,074,449 seriously underwater properties representing 17.2 percent of all homes with a mortgage in the second quarter of 2015. The number and share of seriously underwater homes peaked in the second quarter of 2012 at 12,824,729 seriously homes representing 28.6 percent of all homes with a mortgage.
Slowing home price appreciation in 2015 has resulted in the share of seriously underwater properties plateauing at about 13 percent of all properties with a mortgage. However, the share of homeowners with the double-whammy of seriously underwater properties that are also in foreclosure is continuing to decrease and is now at the lowest level we’ve seen since we began tracking that metric in the first quarter of 2012.
The share of distressed properties—those in some stage of the foreclosure process — that were seriously underwater at the end of the second quarter was 34.4 percent, down from 35.1 percent in the first quarter of 2015 and down from 43.6 percent in the second quarter of 2014 to the lowest level since tracking began in the first quarter of 2012. Conversely, the share of foreclosures with positive equity increased to 42.4 percent in the second quarter, up slightly from 42.1 percent in the first quarter and up from 34.1 percent in the second quarter of 2014.
Share of equity rich mortgaged properties up 1 million from year ago, down 300K YTD
The universe of equity-rich mortgaged properties—those with at least 50 percent equity—decreased on a quarter-over-quarter basis for the second straight quarter, down to 10.9 million representing 19.6 percent of all properties with a mortgage at the end of the second quarter. That was down from 11.1 million representing 19.8 percent at the end of the first quarter and down from 11.3 million representing 20.3 percent at the end of the fourth quarter, but still up from 9.9 million representing 18.9 percent at the end of the second quarter of 2014.
Although the number of equity rich homeowners with a mortgage has increased by 1 million compared to a year ago, that number dropped by nearly 300,000 between the end of 2014 and the middle of 2015. The number of homeowners with a mortgage who have at least 20 percent equity has dropped by more than 900,000 during the past six months, indicating that homeowners who have gained substantial equity thanks to the housing price recovery over the past three years are taking advantage of that newfound equity. Some are leveraging that equity into a higher LTV refinance or a move-up purchase, some may be downsizing into an all-cash purchase and some may be cashing out of homeownership altogether. Those homeowners cashing out of homeownership altogether would explain why the nation’s overall homeownership rate continued to decline in the second quarter even as homeownership rates among millennials increased.
Major metro areas with the highest percentage of equity rich properties reflect areas of continued growth in home prices: San Jose, California (43.8 percent), San Francisco, California (38.3 percent), Honolulu, Hawaii (36.7 percent), Los Angeles, California (32 percent), New York (30.7 percent), Pittsburgh, Pennsylvania (29.4 percent), Poughkeepsie, New York (28.0 percent), Oxnard, California (27.5 percent) and San Diego, California (26.9 percent).
Markets with the most seriously underwater properties
Markets with a population greater than 500,000 with the highest percentage of seriously underwater properties in Q2 2015 were Lakeland, Fla., (28.5 percent), Cleveland, Ohio (28.2 percent), Las Vegas, Nev. (27.9 percent), Akron, Ohio (27.3 percent), Orlando, Fla. (26.1 percent), Tampa, Fla. (24.8 percent), Chicago, Ill. (24.8 percent), Palm Bay, Fla. (24.4 percent) and Toledo, Ohio (24.3 percent).
Markets where the share of distressed properties—those in some stage of foreclosure—that were seriously underwater exceeded 50 percent in the first quarter of 2015 included Las Vegas, Nev. (57.7 percent), Lakeland, Fla. (54.8 percent), Cleveland, Ohio (52.9 percent), Chicago, Ill. (52.5 percent), Tampa, Fla. (51.7 percent ), Palm Bay, Fla. (51.5 percent), and Orlando, Fla. (51.2 percent).
Markets with the highest share of positive equity foreclosures
Those states with the highest percent of distressed properties with positive equity included Colorado (72.0 percent), Alaska (69.8 percent), Texas (66.4 percent), Oklahoma (65.2 percent), and Nebraska (64.4 percent).
Major markets where the share of distressed properties with positive equity exceeded 60 percent included Denver, Colo. (83.7 percent), Austin, Texas (83.1percent), Honolulu, Hawaii (77.5 percent), San Jose, Calif. (77 percent), Pittsburgh, Pa. (75.9 percent), Jackson Miss. (75 percent), Nashville, Tenn. (69.3 percent) and Houston, Texas (69 percent).
Homes owned seven to 11 years account for 38 percent of all seriously underwater homes
Residential properties owned between seven years and 11 years accounted for 38 percent of all seriously underwater homes as of the end of the second quarter. The highest seriously underwater rate is for homes owned for nine years, 21.6 percent of which are seriously underwater, followed by those owned for 10 years, 19.8 percent of which are seriously underwater, and those owned for eight years, 19.0 percent of which are seriously underwater.