The Negative Equity Picture Is Improving

CoreLogic released a new analysis showing 759,000 properties regained equity in the second quarter of 2015, bringing the total number of mortgaged residential properties with equity at the end of Q2 2015 to approximately 45.9 million, or 91 percent of all mortgaged properties. Nationwide, borrower equity increased year over year by $691 billion in Q2 2015. The total number of mortgaged residential properties with negative equity is now at 4.4 million, or 8.7 percent of all mortgaged properties. This compares to 5.1 million homes, or 10.2 percent, that had negative equity in Q1 2015, a quarter-over-quarter decrease of 1.5 percentage points. Compared with 5.4 million homes, or 10.9 percent, reported for Q2 2014, the number of underwater homes has decreased year over year by 1.1 million, or 19.4 percent.

Negative equity, often referred to as “underwater” or “upside down,” refers to borrowers who owe more on their mortgages than their homes are worth. Negative equity can occur because of a decline in home value, an increase in mortgage debt or a combination of both.

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For the homes in negative equity status, the national aggregate value of negative equity was $309.5 billion at the end of Q2 2015, falling approximately $28.5 billion from $338 billion in Q1 2015. On a year-over-year basis, the value of negative equity declined overall from $350 billion in Q2 2014, representing a decrease of 11.6 percent in 12 months.

Of the more than 50 million residential properties with a mortgage, approximately 9 million, or 17.8 percent, have less than 20 percent equity (referred to as “under-equitied”), and 1.1 million, or 2.3 percent, have less than 5 percent equity (referred to as near-negative equity). Borrowers who are “under-equitied” may have a more difficult time refinancing their existing homes or obtaining new financing to sell and buy another home due to underwriting constraints. Borrowers with near-negative equity are considered at risk of moving into negative equity if home prices fall.

“Home price appreciation and foreclosure completions both reduce the number of homeowners with negative equity, the latter because most homeowners who lost homes through foreclosure had some level of negative equity,” said Frank Nothaft, chief economist for CoreLogic. “Between June 2014 and June 2015, the CoreLogic national Home Price Index (HPI) rose 5.6 percent and we reported the number of homes completing foreclosure proceedings exceeded one-half million. Both of these factors helped reduce the number of homeowners with negative equity by one million over the year ending in June.”

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“For much of the country, the negative equity epidemic is lifting. The biggest reason for this improvement has been the relentless rise in home prices over the past three years which reflects increasing money flows into housing and a lack of housing stock in many markets,” said Anand Nallathambi, president and CEO of CoreLogic. “CoreLogic predicts home prices to rise an additional 4.7 percent over the next year, and if this happens, 800,000 homeowners could regain positive equity by July 2016.”

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