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Negative Equity Remains Considerable Problem in Chicagoland’s Lower Price Points

by Peter Thomas Ricci

Sure, negative equity has improved overall, but what of properties on the lower-end of price spectrum?

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Though 25.1 percent of mortgage properties in Chicagoland remain in negative equity, that pales in comparison to the 41.5 percent of properties in the metro area’s lower-price points that remain underwater.

That was the key finding in Zillow’s Q4 Negative Equity Report, which takes a decidedly democratic view at the problem of negative equity – and how, despite substantial improvements, it can’t seem to go away.

Are High Negative Equity Rates Here to Stay?

Indeed, despite impressive gains in the housing market – home values, for instance, were up nearly 6 percent in 2014, according to Zillow – the rate of negative equity has remained high, and as Zillow Chief Economist Stan Humphries explained, such elevated rates have become a “new normal.”

“Higher negative equity rates have become the new normal,” Humphries said. “We’ve long been expecting the negative equity rate to fall more slowly as home value growth also slows, and unfortunately that’s exactly what we’re seeing. Compounding the problem is the fact that negative equity is decidedly not an equal opportunity predator, and looms larger over the bottom 10 percent of homes, where homeowners are least prepared to withstand the assault.”

It’s Humphries’ last point that is essential in understanding why negative equity rates have remained so high. Though the economy has improved in recent years, the vast percentage of those gains have gone to a select number of individuals, which has widened inequality and left many communities behind – the same communities, it turns out, that suffered the most during the housing downturn. Where the economy goes, housing follows in tandem, and if local economies are not improving, it stands to reason that the area’s housing markets will follow suit.

Take a look at our graph below for an idea on why housing today is very much a “tale of two cities.”

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