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U.S. Negative Equity Rate Dips Below 20 Percent in Q4, Less Than 10 Million Remain Underwater

- U.S. negative equity rate falls to 19.4 percent of all homeowners with a mortgage in Q4 2013.

- 3.9 million U.S. homeowners freed in 2013, 9.8 million homeowners remain underwater.

- Las Vegas, Atlanta & Orlando have highest negative equity rates; San Jose, Austin & Houston have lowest rates.

- Slowing home value appreciation, diminished foreclosure activity among factors that could contribute to a slowdown in negative equity improvement.

 

SEATTLEFeb. 28, 2014 /PRNewswire/ -- The national negative equity rate ended 2013 below 20 percent for the first time in yearsi, dipping to 19.4 percent of all homeowners with a mortgage, according to the fourth quarter Zillow® Negative Equity Reportii. Nationally, more than 9.8 million homeowners remain underwater, owing more on their mortgage than their home is worth.

Negative equity has fallen for seven consecutive quarters as home values have risen, freeing almost 3.9 million homeowners nationwide in 2013. The national negative equity rate fell from 27.5 percent of all homeowners with a mortgage as of the end of the fourth quarter of 2012, and 21 percent in the third quarter.

But while negative equity is slowly but surely receding, a number of factors will help ensure it remains a factor in the market for years to come. The "effective" negative equity rate, which includes those homeowners with a mortgage with 20 percent or less equity in their homes, remains stubbornly high. More than one-third of homeowners with a mortgage (37.6 percent) are effectively underwater, unable to sell their homes for enough profit to comfortably meet expenses related to listing a home and purchasing a new one.

"We've reached an important milestone as negative equity has fallen below 20 percent nationwide, which has helped free up marginally more inventory and contribute to further stabilization of the market," said Zillow Chief Economist Dr. Stan Humphries. "But a number of headwinds will prevent negative equity from falling at the kind of sustained, rapid pace we need before the market can completely return to normal, and it remains roughly four times what it is in a healthier market. High negative equity is just another sign of how distorted the market continues to be, and how far we still have to go on the road back to normal."

Home values ended 2013 up 6.6 percent, the single-largest contributor to the falling negative equity rate. But the pace of home value appreciation is slowing, with home values expected to rise just 3.4 percent over the next 12 months, according to the most recent Zillow Home Value Forecastiii. As home value appreciation slows, the pace of negative equity improvement will slow.

Nationwide, the negative equity rate is expected to fall to 17.2 percent by the end of 2014, according to the Zillow Negative Equity Forecastiv. But in some local markets, negative equity could rise as homes lose value. Negative equity is expected to rise in 26 metro markets nationwide, including in St. Louis, the only market among the 35 largest that is expected to see its negative equity rate go up in the next year. Negative equity is expected to remain flat in another 227 metros.

Finally, at the end of the fourth quarter, the number of homes foreclosed nationwide fell to just over 5 homes per 10,000, from roughly 6.1 homes per 10,000 at the end of 2012. As foreclosure activity continues to fall, the pace of negative equity improvement will also slow, as homeowners' debt is wiped from lenders' books following foreclosure.

Metro

Q4 2013

Negative

Equity

Rate

Q4 2013

"Effective"

Negative

Equity Rate

Forecasted

Negative

Equity Rate

(Q4 2014)

 UNITED STATES

19.4%

37.6%

17.2%

New York

16.2%

30.3%

14.7%

Los Angeles

11.6%

24.1%

8.9%

Chicago

29.7%

46.2%

27.2%

Dallas-Fort Worth

12.9%

38.1%

11.2%

Philadelphia

20.9%

39.4%

19.8%

Houston

10.2%

29.7%

9.5%

Washington

20.5%

38.5%

18.4%

Miami-Fort Lauderdale

26.7%

39.5%

23.9%

Atlanta

35.0%

54.1%

29.3%

Boston

10.4%

26.4%

9.2%

San Francisco

10.7%

21.1%

8.6%

Detroit

27.9%

42.1%

24.6%

Riverside

24.5%

40.9%

17.0%

Phoenix

22.2%

38.8%

20.0%

Seattle

20.2%

38.9%

16.5%

Minneapolis-St Paul

18.6%

39.1%

16.6%

San Diego

13.1%

28.4%

10.3%

St. Louis

23.8%

45.1%

26.8%

Tampa

28.6%

44.7%

24.2%

Baltimore

22.3%

41.7%

19.7%

Denver

10.6%

32.3%

9.4%

Pittsburgh

11.3%

27.3%

10.3%

Portland

15.2%

35.4%

12.1%

Sacramento

20.5%

37.7%

14.9%

San Antonio

13.7%

36.1%

12.8%

Orlando

30.3%

46.7%

24.6%

Cincinnati

21.2%

44.0%

20.3%

Cleveland

23.6%

42.5%

23.0%

Kansas City

24.0%

47.7%

23.6%

Las Vegas

35.1%

52.0%

30.7%

San Jose

6.7%

15.5%

5.5%

Columbus

21.6%

45.4%

18.4%

Charlotte

21.6%

46.9%

19.4%

Indianapolis

18.4%

41.7%

17.5%

Austin

9.0%

29.5%

8.4%

These results are from the fourth quarter edition of the Zillow Negative Equity Report, which looks at current outstanding loan amounts for individual owner-occupied homes and compares them to those homes' current estimated values. Loan data is provided by TransUnion®, a global leader in credit and information management. This is the only report that uses current outstanding loan balances on all mortgages when calculating negative equity. Other reports estimate current outstanding loan balance based on the most recent loan on a property (i.e., the original loan amount at time of purchase or refinance).

SOURCE Zillow, Inc

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