Negative Equity Rate Drops Below 20 Percent

March 8, 2014

When a homeowner owes more on their mortgage than their property is worth, they’re in a state known as being “underwater” in their mortgage. Being underwater in a mortgage also means having negative equity. This can make it difficult for the homeowner to afford to sell or refinance. This unfortunate situation became fairly common among U.S. homeowners after the housing crisis; however, according to the latest Negative Equity Report from Zillow, the share of underwater homeowners has dropped significantly.

According to the quarterly report, the amount of U.S. homeowners with negative equity has dropped below 20 percent for the first time in years. Nearly 3.9 million U.S. homeowners were able to escape negative equity, dropping the rate to 19.4 percent at the close of the fourth quarter 2013. The rate was 21 percent in the previous quarter and 27.5 percent in the fourth quarter 2012.

While the numbers are beginning to show significant improvements, there are many homeowners who still struggle with being underwater. Fourth quarter data from Zillow shows that nearly 10 million people were in the red, collectively owing $657 billion more than their homes are worth.

While millions of homeowners remain underwater, the figure is even larger when you include those homeowners who have effective negative equity – where the loan-to-value ratio is more than 80 percent. In the fourth quarter, 37.6 percent of homeowners with a mortgage were afflicted with effective negative equity. In the report, Zillow’s Svenja Gudell notes that while not all of these homeowners are underwater, they have relatively little equity in their homes. This makes it extremely challenging for them to to sell their home and buy a new one while covering the associated costs such as a down payment, real estate agent fees and so forth.

Despite remaining challenges, things are poised to improve. According to a recent Zillow blog post, the negative equity rate is expected to fall to 17.2 percent by the end of this year. This will not only further improve the nation’s negative equity condition, it should – at least hopefully – encourage more homeowners to sell, freeing up inventory and providing buyers with a more lush market.

10 States with Highest Negative Equity

At 34 percent, Nevada is the state with the highest share of underwater homeowners. Georgia follows close behind with a share of 32 percent. Illinois and Florida are tied for states with the third-highest negative equity rate at 28 percent. Maryland and Michigan are next, with rates of 26 and 25 percent, respectively. Arizona, Delaware and Rhode Island each had rates of 24 percent. Finally, Missouri, had a negative equity rate of 23 percent.

10 States with Lowest Negative Equity

Montana and North Dakota are tied for the top state with the lowest negative equity, with a rate of only 9 percent. Hawaii and Nebraska came in second, both with rates of 10 percent. Alaska, Massachusetts, South Dakota and Texas all tied for third with a rate of 12 percent each. Washington, D.C. and New York both had rates of 13 percent.

Have Negative Equity?

If you’re a homeowner who owes more on your mortgage than your home is currently worth, don’t despair. There may be solutions that can help. Have you looked into HARP refinancing? Perhaps there are things you can do to your home to increase its value? Talk to an experienced homeownership professional, real estate agent or eLEND loan officer to learn more about how you can work with negative equity.

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