Since last year, more than one million homes have found their way out of negative equity, a report from CoreLogic revealed.
Since the second quarter of 2014, when 5.4 million homes, or 10.9 percent of all residential mortgages, were underwater, strong home price appreciation has ferried 1.1 million into equity – a decrease of 19.4 percent of underwater homes. The total number of homes in negative equity now stands at 4.4 million, or 8.7 percent of all mortgaged homes.
The aggregate value of the gained equity has been tremendous. In Q2 2014, the value of negative equity hovered around $350 billion. However, in the last 12 months, that figure has fallen 11.6 percent to only $309.5 billion.
More than one million mortgages, or 2.3 percent of all residential mortgages, are approaching the threshold into negative equity, but with rising home prices, that number is dwindling with each quarter.
At the state level, Illinois’ loan to value ratio is at 64.7 percent – well above the national level of 57.3 percent – and equity share is resting at 86.9 percent, which isn’t lowest in the nation, but is among them.
More than 13 percent of mortgages are nearing negative equity in the state, a foreboding sign, but a 2.3 percent near equity share, which includes mortgages within 5 percent of positive equity, is above that nation’s 1.7 percent share. Improvements to the state’s housing market have been moderate this past year, but also consistent, and as a result home prices have elevated and more homeowners have regained equity.
In Chicago, Illinois’ biggest metro, 15.3 percent of residential mortgages were underwater as of Q2 2015, compared with 17.9 percent during the same time last year.
Equity Not Equal
CoreLogic’s report went on to describe the state of national home equity in great detail, including:
- Of the total $309 billion in negative equity, first liens without home equity loans accounted for $168 billion, or 54 percent, in aggregate negative equity, while first liens with home equity loans accounted for $142 billion, or 46 percent.
- Approximately 2.6 million underwater borrowers hold first liens without home equity loans. The average mortgage balance for this group of borrowers is $239,000 and the average underwater amount is $64,000.
- Approximately 1.7 million underwater borrowers hold both first and second liens. The average mortgage balance for this group of borrowers is $303,000 and the average underwater amount is $82,000.
One particularly telling detail of the report was how equity is currently distributed among housing tiers, as the majority is concentrated at the higher end of the market. An example CoreLogic gives is that 95 percent of homes valued greater than $200,000 have equity, compared with 87 percent of homes valued at less than $200,000.
Foreclosures Improve Equity
“For much of the country, the negative equity epidemic is lifting,” said CoreLogic CEO and President Anand Nallathambi.
The company’s chief executive said that the “relentless rise in home prices over the past three years” has been the market’s primary equity driver. But Frank Nothaft, chief economist for CoreLogic, added that foreclosure completions have also helped fished mortgages out from underwater.
“Home price appreciation and foreclosure completions both reduce the number of homeowners with negative equity, the latter because most homeowners who loost homes through foreclosure had some level of negative equity,” he said. “Between June 2014 and June 2015, the CoreLogic national Home Price Index rose 5.6 percent and we reported the number of homes completing foreclosure proceedings exceeded one-half million.”
CoreLogic researchers have predicted that home prices will rise an additional 4.7 percent over the next year, and Nallathambi said that if that happens, “800,000 homeowners could regain positive equity by July 2016.”