Tuesday, February 23, 2010

Q4 Report: 11.3 Million U.S. Properties with Negative Equity

by Bill McBride on 2/23/2010 05:27:00 PM

First American CoreLogic released the Q4 negative equity report today.

First American CoreLogic reported today that more than 11.3 million, or 24 percent, of all residential properties with mortgages, were in negative equity at the end of the fourth quarter of 2009, up from 10.7 million and 23 percent at the end of the third quarter of 2009. An additional 2.3 million mortgages were approaching negative equity at the end of last year, meaning they had less than five percent equity. Together, negative equity and near‐negative equity mortgages accounted for nearly 29 percent of all residential properties with a mortgage nationwide.
From the report:
  • Negative equity continues to be concentrated in five states: Nevada, which had the highest percentage negative equity with 70 percent of all of its mortgaged properties underwater, followed by Arizona (51 percent), Florida (48 percent), Michigan (39 percent) and California (35 percent). Among the top five states, the average negative equity share was 42 percent, compared to 15 percent for the remaining 45 states. In numerical terms, California (2.4 million) and Florida (2.2 million) had the largest number of negative equity mortgages accounting for 4.6million, or 41 percent, of all negative equity loans.
  • Negative Equity by State Click on image for larger graph in new window.

    This graph shows the negative equity and near negative equity by state.

    Although the five states mentioned above have the largest percentgage of homeowners underwater, 10 percent or more of homeowners have negative equity in 33 states, and over 20% have negative equity or near negative equity in 23 states. This is a widespread problem.

    Sever Negative Equity Note: Louisiana, Maine, Mississippi, South Dakota, Vermont, West Virginia and Wyoming are NA in the graph above.

    The second graph shows homeowners with severe negative equity for five states.

    These homeowners are far more likely to default.
  • The rise in negative equity is closely tied to increases in pre‐foreclosure activity and is a major factor in changing homeowners’ default behavior. Once negative equity exceeds 25 percent, or the mortgage balance is $70,000 higher than the current property values, owners begin to default with the same propensity as investors.
  • Pre-foreclosure rate by negative equity Here is figure 4 from the report.

    The default rate increases sharply for homeowners with more than 20% negative equity.

    This graph fits with figure 2 above and suggests a large number of future defaults in Nevada, Arizona, Florida and California.
  • The aggregate dollar value of negative equity was $801 billion, up $55 billion from $746 billion in Q3 2009. The average negative equity for an underwater borrower in Q4 was ‐$70,700, up from ‐$69,700 in Q3 2009. The segment of borrowers that are 25 percent or more in negative equity account for over $660 billion in aggregate negative equity.
  • Most homeowners with negative equity will probably not default, but this does suggest there are many more foreclosures coming - and more losses.

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