66% Of Las Vegas Mortgages Are Underwater, 27.7% Of Total US Housing Debt Has Negative And Near-Negative Equity
Following yesterday's news out of Zillow of a 0.77% drop in April home values compared to March, today we get an update from CoreLogic which in turn looks at the latest trends on "underwater" (or negative equity) mortgages in the US. In summary: "10.9 million, or 22.7 percent, of all residential properties with a mortgage were in negative equity at the end of the first quarter of 2011, down slightly from 11.1 million, or 23.1 percent, in the fourth quarter. An additional 2.4 million borrowers had less than five percent equity, referred to as near-negative equity, in the first quarter. Together, negative equity and near-negative equity mortgages accounted for 27.7 percent of all residential properties with a mortgage nationwide. In the fourth quarter, these two categories stood at 27.9 percent." The most impacted state is Nevada, which has 62.6% of all mortgages underwater (with another 4.8% in near-negative), followed by Arizona, Florida and Michigan. California is fifth with 30.9% of all homes underwater. We doubt these millions of "homeowners" are benefiting much from the wealth effect.
Highlights from the report:
- Data Highlights Nevada had the highest negative equity percentage with 63 percent of all mortgaged properties underwater, followed by Arizona (50 percent), Florida (46 percent), Michigan (36 percent) and California (31 percent). The negative equity share in the top 5 states was 39 percent, down from 40 percent in the fourth quarter. Excluding the top 5 states, the negative equity share was 16 percent in the current and previous quarter.
- Although the slight decline in the national negative equity share was primarily due to slight improvements in the hardest hit states, which include Nevada (-2.7 percentage points), Arizona (-1.3 percentage points) and Florida (-1.3 percentage points), the majority of states either remained unchanged or had minor increases.
- Las Vegas led the nation with a 66 percent negative equity share, followed by Stockton (56 percent), Phoenix (55 percent), Modesto (55 percent) and Reno (54 percent). Outside metropolitan areas in the top 5 negative equity states, the metropolitan markets with the highest negative equity shares include Greeley, CO (38 percent), Boise (36 percent), and Atlanta (35 percent).
- While the average negative equity borrower was upside down by $65,000, there were wide disparities by state (Figure 3). New York borrowers were upside down by an average of $129,000, the highest average in the nation, followed by other high housing cost states: Massachusetts ($120,000), Connecticut ($111,000), Hawaii ($98,000) and California ($93,000). Ohio’s negative equity borrowers were upside down by $31,000, the lowest average in the nation, followed by Indiana ($34,000) and Minnesota ($38,000).
- Not only was the decline in prices a clear force driving negative equity, but borrower equity extraction also significantly increased the risk of a negative equity position. While only 18 percent of borrowers with no home equity loans were underwater at the end of the first quarter, 38 percent of borrowers with home equity loans were in a negative equity position. Over 40 percent (4.5 million) of all negative equity borrowers have home equity loans.
- While borrowers with positive equity averaged 1.2 loans per property (Figure 4), this incidence rises to 1.6 loans per property for negative equity borrowers and it continues to rise the deeper the property is underwater.
- Not only does the incidence of home equity loans raise the probability of a negative equity position, but it also raises the severity of that position. A negative equity borrower without home equity loans is upside down by an average of $52,000, versus an upside down average of $83,000 for a negative equity borrower with home equity.
- The default rate generally rises as the current combined loan-to-value ratio (CLTV) increases; however there are differences between default rates for negative equity borrowers with home equity loans vs. those without (Figure 5). At moderate levels of negative equity (up to 115 percent CLTV), the default rate for borrowers with home equity loans is slightly higher than those without. However, for those with severe negative equity (115 percent CLTV and above), the relationship reverses and the default rates for mortgage loans without home equity perform slightly worse.
A table breaking down the state by state negative equity:
Looking at the home equity data chronologically indicates little improvement over the past year:
New York continues to be the best "capitalized" state with nearly $130,000 difference between property value and mortgage debt outstanding. On the other end of the spectrum are Ohio, Indiana, and Minnesota.
And so on - Full report here. We are confident that as ever more equity value across the troubled US housing sector evaporates the Fed will have no choice but to onboard ever more of this toxic debt: whether or not this will be the key asset class purchased by Bernanke in the next monetary easing round remains to be seen.