Home Equity Rebound Slows its Pace

October 23, 2014

More home owners are eeking out equity again on their properties, but with slowing home appreciation, millions of home owners may still be at risk of foreclosure.

Equity-rich properties – those with at least 50 percent equity – grew to 10.8 million, or 20 percent of all properties with a mortgage, in the third quarter, according to RealtyTrac’s third quarter U.S. Home Equity & Underwater Report. That percentage is up from 19 percent of properties in the second quarter of 2014.

Another 8.5 million properties – or 16 percent of all homes with a mortgage -- are teetering on the edge of equity, with between 10 percent of negative equity and 10 percent of positive equity.

But many home owners have yet to regain equity. There are 8.1 million U.S. residential properties seriously underwater – in which the combined loan amount secured by the property is at least 25 percent higher than the property’s estimated market vale, according to RealtyTrac. The number of properties with negative equity has fallen to the lowest level since RealtyTrac began tracking such data in 2012. The peak was in the second quarter of 2012 when 12.8 million properties – or 29 percent of all properties with a mortgage – were seriously underwater.

“The decrease in underwater properties is promising but the estimated $1.4 trillion in negative equity means that the flood waters are not receding as quickly as they were before, corresponding to slowing home appreciation,” says Daren Blomquist, vice president at RealtyTrac. “Slower price appreciation means 8 million home owners seriously underwater could still have a long road back to positive equity.”

To paint a picture of the typical underwater home owner, RealtyTrac found it’s often a home owner who bought or refinanced during the housing bubble years (from 2004 to 2008), owns a home worth less than $200,000, and who lives in the Sun Belt or Rust Belt.

On the other hand, the highest percentage of equity rich home owners were those who bought or refinanced between 1994 and 1998; have properties valued at $500,000 or more; and tend to live in New York, California, and Washington, D.C.

The States With the Highest Levels of Negative Equity

The following states had the highest percentage of residential properties seriously underwater in the third quarter, according to RealtyTrac:

  • Nevada: 31%
  • Florida: 28%
  • Illinois: 26%
  • Michigan: 25%
  • Rhode Island: 22%

The metro area (with population of 500,000 or more) with the highest percentage of properties seriously underwater was Las Vegas at 34 percent.

The Equity-Rich Markets

The following metros had the highest percentage of equity-rich properties – those with at least 50 percent equity or more – during the third quarter:

  • San Jose, Calif.: 45%
  • San Francisco: 41%
  • Honolulu: 36%
  • Los Angeles: 32%
  • New York, N.Y.: 31%

Source: RealtyTrac