Underwater mortgages, beneath the numbers
A widely covered report by First American CoreLogic headlines that nearly 1 in 4 homeowners have negative equity in their home or in today's parlance, they are "underwater" on their mortgage. It's an important report because borrowers who have negative equity in their homes are more likely to be foreclosed.
Let's take a further look inside the numbers (or in this case, let's look beneath the surface).
Highlights from First American CoreLogic's 3rd quarter negative equity report
Nearly 10.7 million, or 23%, of all residential properties with mortgages were in negative equity as of September 30, 2009.
The distribution of negative equity is heavily concentrated in five states: Nevada (65 percent), which had the highest percentage negative equity, followed by Arizona (48 percent), Florida (45 percent), Michigan (37 percent) and California (35 percent). Among the top five states, the average negative equity share was 40 percent, compared to 14 percent for the remaining states.
The bulk of 'upside down' borrowers, as a group share certain characteristics. They:
Financed their properties between 2005 and 2008, with 2006 being the peak year where 40 percent of borrowers were in negative equity.
Purchased newly built homes that are concentrated in a small number of states. For homes built between 2006 and 2008, the negative equity share is over 40 percent.
Relied on adjustable rate mortgages (ARM's).
Bought less expensive properties. The average value for all properties with a mortgage is $270,200 , but properties in negative equity have an average value of $210,300 or 22 percent less.
Not good news. But once again, the impact of the most distressed states does tend to distort the picture a little bit. In South Carolina (and I'm sorry but statistics for the Charleston real estate market are not available), the negative equity rate is 12 percent ranking right in the middle of all the states at 27th.
It really is a fascinating report and you should click the link to find out more.
The map below shows you the less than pretty picture.
