Negative Equity Breakdown: Nevada, Florida and Arizona Lead the List

07-31-2010 • CalculatedRiskBlog.com

If you look at Arizona, 9.8% of homeowners (with mortgages) are more than 50% underwater, and another 20.5% are 20% to 50% underwater. These are the homeowners most at risk for foreclosure. Here is some data from a recent congressional briefing by Mark Zandi, Chief Economist of Moody's Economy.com, and Yale Professor Robert Shiller. I believe all of this negative equity data was presented by Zandi. A few key points, as of Q1 2010: There is almost $2.4 trillion mortgage debt for homes in negative equity. The total negative equity is $771 billion. There are 4.1 million homeowners with more than 50% negative equity (they owe 50%+ more than their homes are worth). This graph shows the percent of homeowners with negative equity (dashed line), percent of homeowners with mortgages with negative equity (blue), and the mortgage debt for homes with negative equity - all since Q1 2006. The good news is the percent of homeowners with negative equity, and the mortgage debt for homes with negative equity, peaked in 2009. The bad news is the declines have been relatively small even with all the distress sales, minor price increases, and some principal reduction modifications. As prices start to fall later this year (as I expect), the number of homeowners with negative equity will probably increase again (offset by foreclosures, short sales, and some modifications with principal reduction). The second graph shows the number of homeowners in negative equity, by the percent of negative equity. There are 4.1 million homeowners with more than 50% negative equity, and another 5 million homeowners with 20% to 50% negative equity. If prices fall 5%, the columns will essentially shift one to the left (ignoring remedies), and there will be 10.2 million homeowners with 20% or more negative equity. The third graph shows the percent of homeowners with mortgages in negative equity for 33 states and D.C. This is shown in three categories: >50%, 20% to 50%, and 0 to 20%. If you look at Nevada, 17.0% of homeowners (with mortgages) are more than 50% underwater, and another 35.2% are 20% to 50% underwater. These are the homeowners most at risk for foreclosure. Note: the Q2 CoreLogic negative equity report will be released soon, but that report doesn't provide this level of detail.