St Louis Homeowners with Negative Equity Increases Slightly in First Quarter of 2011

By Dennis Norman, on June 7th, 2011

A report released today by CoreLogic shows that 17.10 percent (97,772) of all St. Louis homeowners with a mortgage were in a negative equity position in the first quarter of 2011, up slightly from 17.0 percent the prior quarter. Negative equity is also referred to as being “underwater” or “upside down” and refers to homeowners that owe more on their mortgages than the current value of their home.

In addition to those St. Louis homeowners that are already underwwater, or in a negative-equity position, there is an additional 6.1 percent of homeowners with a mortgage (35,167) that are in a “near negative equity” position, which is down slightly from 6.2 percent the prior quarter. “Near negative equity” refers to those homeowners with less than 5 percent equity in their home.

Nationally, 22.7 percent of homeowners with a mortgage are in a negative-equity position, down slightly from 23.1 percent the prior quarter, and an additional 2.4 million borrowers were in a near negative-equity position, bringing the overall total to 27.1 percent of all mortgages, down from 27.9 percent the prior quarter.

National Report 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.

“Many borrowers in negative equity are still able and willing to make their mortgage payments. Those in negative equity and impacted by an income shock of some kind, such as a job loss, divorce, or death, are much more likely to be at risk of foreclosure or a short sale. The current economic indicators point to slow yet positive economic growth, which will slowly reduce the risk of borrowers experiencing income shocks,” said Mark Fleming, chief economist with CoreLogic. “Yet the existence of negative equity for the foreseeable future will weigh on the housing market recovery by holding back sale and refinance activity.”