Price rises brings more US home owners out of negative equity but still a drag on the market

There are fewer home owners in the United States underwater on their mortgages, but more than half of those who remain underwater owe at least 20% more than their homes are worth.

The depth of negative equity alone will ensure that negative equity will continue to be a drag on the housing market even after home values return to pre-crisis levels, according to the latest report from real estate firm Zillow.

The research shows that nationally, the share of home owners with a mortgage who owe more than the value of their homes fell to 10.5% at the end of 2016, less than the 13.1% recorded a year before.

It also explains that home value appreciation has accelerated over the past few months, lifting thousands of underwater home owners back into positive equity, but millions remain stuck in negative equity, unable to list their homes and re-enter the market.

According to Svenja Gudell, Zillow chief economist, this acts as an anchor for the housing market, further limiting already constrained inventory. ‘Negative equity is one of the most persistent reminders of the long term losses suffered when the housing market collapsed,’ she said.

‘Accelerating home value appreciation over the past few months was a blessing to owners who have been underwater since the housing bubble burst, but not all underwater owners were able to ride that wave to positive equity,’ she explained.

‘We are in for many more years of elevated levels of negative equity. Even as median home values close in on peak levels reached during the housing boom, some people still face a long wait before returning to a positive balance on their home loans,’ she added.

The report shows that overall the rate of negative equity has declined each quarter since peaking at 31.4% in the first quarter of 2012. However, the decline of negative equity has slowed because most homes that were only slightly underwater have resurfaced as home values rebounded following the crash.

Las Vegas and Chicago had the highest rates of negative equity among the largest US metros, with 16.6% and 16.5% of home owners underwater, respectively. The West Coast is home to all five major metros with the lowest rates of negative equity.

Enter your e-mail address to receive updates straight to your inbox

I'm interested in..
Your mail preferences