Negative Equity: 43% of Homeowners ‘Still Stuck’, Unable to Move
A quarter of U.S. homeowners are “underwater,” owing more on mortgages than the worth of their homes, according to Zillow’s latest update for the first quarter of 2013.
But the latest tally on negative equity also shows that another 18.2 percent of homeowners with mortgages, while not technically underwater, likely do not have enough equity to afford to move.
Slightly more than 13 million homeowners with a mortgage were in negative equity, or underwater, at the end of the first quarter. When including homeowners with less than 20 percent home equity, the “effective” negative equity rate at the end of the first quarter was 43.6 percent, or a total of 22.3 million homeowners.
These homeowners likely cannot afford a down payment for a new home, tying them to their current homes and contributing to inventory shortages, Zillowsaid.
A homeowner technically reaches positive equity as soon as the market value of their home exceeds their outstanding loan balance. But listing a home for sale and buying a new one generally requires equity of 20 percent or more to comfortably meet related costs.
“Reaching positive equity, even barely, is an important milestone,” said Zillow Chief Economist Dr. Stan Humphries. “But things like real estate agents’ fees and a down payment for the next home traditionally come out of the proceeds from the prior home’s sale. Without enough equity, these costs will instead have to come out of a homeowner’s pocket, leaving many still stuck.”
Declines in the number of underwater borrowers haven’t yet translated into more homes for sale.
“The only cure is patience, as rising home values continue to build equity to the point where more homeowners can realistically sell,” Humphries said.
Among the 30 largest metro areas covered by Zillow, those with the highest effective negative equity rate, including homeowners with 20 percent equity or less, are Las Vegas (71.5 percent); Atlanta (64.1 percent); and Riverside, Calif. (59.7 percent).
Zillow predicts the negative equity rate among all homeowners with a mortgage will fall to 23.5 percent by the first quarter of 2014, lifting more than 1.4 million additional homeowners nationwide into positive equity. Of the 30 largest metro areas, the majority of these newly freed homeowners are anticipated to come from: Los Angeles (94,642 homeowners); Riverside (74,693 homeowners); and Phoenix (51,580 homeowners).