Nationally: Negative Home Equity Decreases in First Quarter of 2012
With a Rise in Prices, More Than 700,000 Households Regain Buoyancy. Nevada, Florida, Arizona, Georgia and Michigan lead the country in negative equity with a combined rate of 44.5%.
Palm Coast, FL – July 16, 2012 – CoreLogic® released new data on Thursday showing that 11.4 million, or 23.7 percent, of all residential properties with a mortgage were in negative equity at the end of the first quarter of 2012. This is down from 12.1 million properties, or 25.2 percent, in the fourth quarter of 2011. An additional 2.3 million borrowers had less than 5 percent equity, referred to as near-negative equity, in the first quarter.
Negative equity, often referred to as “underwater” or “upside down,” means that borrowers owe more on their mortgages than their homes are worth. Negative equity can occur because of a decline in value, an increase in mortgage debt or a combination of both.
Together, negative equity and near-negative equity mortgages accounted for 28.5 percent of all residential properties with a mortgage nationwide in the first quarter, down from 30.1 percent in Q4 2011. More than 700,000 households regained a positive equity position in the Q1 2012. Nationally, negative equity decreased from $742 billion in Q4 2011 to $691 billion in the first quarter, a fall of $51 billion in large part due to an improvement in house price levels.
“In the first quarter of 2012, rebounding home prices, a healthier balance of real estate supply and demand, and a slowing share of distressed sales activity helped to reduce the negative equity share,” said Mark Fleming, chief economist for CoreLogic. “This is a meaningful improvement that is driven by quickly improving outlooks in some of the hardest hit markets. While the overall stagnating economic recovery will likely slow housing market recovery in the second half of this year, reducing the number of underwater households is an important step toward reducing future mortgage default risk.”
“We are encouraged by the positive trend of increasing housing prices and falling negative equity share in key states like Arizona, Nevada and Tennessee,” said Anand Nallathambi, president and CEO of CoreLogic. “Although it will still be a slow recovery for U.S. homeowners, we see this improvement as a stabilizing and positive development for the mortgage industry.”
Highlights as of Q1 2012
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Nevada had the highest negative equity percentage with 61 percent of all mortgaged properties underwater, followed by Florida (45 percent), Arizona (43 percent), Georgia (37 percent) and Michigan (35 percent). These top five states combined have an average negative equity share of 44.5 percent, while the remaining states have a combined average negative equity share of 15.9 percent.
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Of the 11.4 million upside-down borrowers, there are 6.9 million first liens without home equity loans. This group of borrowers has an average mortgage balance of $212,000 and is underwater by an average of $47,000. For all first-lien-only borrowers, the negative equity share was 19 percent while 42 percent of all first-lien-only borrowers had a loan to value (LTV) ratio of 80 percent or higher.
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The remaining 4.5 million upside-down borrowers had both first and second liens. The average mortgage balance for this group was $299,000, and they were upside-down by an average of $82,000. The negative equity share for all first-lien borrowers with home equity loans was 39 percent, more than twice the share for all first-lien-only borrowers. More than 60 percent of borrowers with first liens and home equity loans had combined LTVs of 80 percent or higher.
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Nearly 17 million borrowers were between 80 percent and 125 percent LTV in Q1 2012 and, purely from an LTV perspective, eligible for the Home Affordable Refinance Program (HARP) under the original requirements first introduced in March 2009. The removal of the 125 percent LTV cap via HARP 2.0 means that more than 22 million borrowers are currently eligible for HARP 2.0 when just considering LTV alone.
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The low end of the market is where the bulk of the negative equity is concentrated. For example, for low-to-mid value homes valued at less than $200,000, the negative equity share is 31 percent for borrowers, almost twice the 15.9 percent for borrowers with home values greater than $200,000.
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Of the total $691 billion in aggregate negative equity, first liens without home equity loans accounted for $326 billion aggregate negative equity, while first liens with home equity loans accounted for $365 billion.
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As of Q1 2012, there were 1.9 million borrowers who were only 5 percent underwater. If home prices continue increasing over the next year, these borrowers could move out of a negative equity position.
The full Q1 2012 negative equity report, with charts and state-level data, is available: CoreLogic Q1 2012 Negative Equity Report.
Methodology
CoreLogic data includes 48 million properties with a mortgage, which accounts for over 85 percent of all mortgages in the U.S.* CoreLogic used its public record data as the source of the mortgage debt outstanding (MDO) which includes both first mortgage liens and second liens and is adjusted for amortization and home equity utilization in order to capture the true level of mortgage debt outstanding for each property. The calculations are not based on sampling, but use the full data set to avoid any potential adverse selection due to sampling. The current value of MDO was estimated using the CoreLogic GeoAVM Core™ Cascade, a suite of CoreLogic Automated Valuation Models (AVMs) for residential properties designed to select the most appropriate valuation model from a group of individual AVMs.** The data was filtered to include only properties valued between $30,000 and $30 million because AVM accuracy tends to quickly worsen outside of this value range, which could yield either overly pessimistic or overly optimistic equity estimates.
The amount of equity for each property was determined by subtracting the estimated current value of the property from the mortgage debt outstanding. If the mortgage debt was greater than the estimated value, then the property was determined to be in a negative equity position. The data was first generated at the property level and aggregated to higher levels of geography.
*Only data for mortgaged residential properties that have an AVM value is presented. There are several states where the public record, AVM or mortgage coverage is thin. Although coverage is thin, these states account for fewer than 5 percent of the total population of the U.S.
**Beginning Q1 2012, the modeling methodology used to estimate market value was enhanced by introducing the CoreLogic GeoAVM Core Cascade. This cascade optimally selects the most appropriate AVM to predict current market value and is calibrated to market sales activity on a quarterly basis. The “cascading” approach helps achieve greater valuation accuracy, increasing the resulting precision of negative equity estimates. CoreLogic has revised the entire negative equity time series to reflect the adoption of the new methodology.
Source: CoreLogic
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