10 Cities Where Homeowners Are Drowning in Mortgage Debt
The shockwaves of the housing bubble are still being felt by millions of Americans. Despite a strong rebound in home prices in recent years, nearly 10 million homeowners remain underwater on their mortgages. Making matters worse, the most affordable homes for first-time homebuyers are also the most likely to be kept off the market because their current owners are in negative equity.
In the first-quarter of 2014, the national negative equity rate improved to 18.8 percent of all homeowners with a mortgage, according to a new report from Zillow. In comparison, the negative negative equity rate was 19.4 percent in the prior quarter and 25.4 percent a year earlier. The rate has improved for eight consecutive quarters, but fell at its slowest pace in almost two years in the first-quarter, and roughly one in three homeowners in the bottom third of home values were underwater. Overall, approximately 9.7 million Americans were underwater on their mortgages.
“The unfortunate reality is that housing markets look to be swimming with underwater borrowers for years to come,” said Zillow Chief Economist Dr. Stan Humphries. “It’s hard to overstate just how much of a drag on the housing market negative equity really is, especially at the lower end of the market, which represents those homes typically most affordable for first-time buyers. Negative equity constrains inventory, which helps drive home values higher, which in turn makes those homes that are available that much less affordable.”
A homeowner technically reaches positive equity when the market value of the house exceeds the outstanding loan balance by any amount, but the associated costs of listing a house and moving prevents many Americans from selling. This is reflected in the effective negative equity rate, which stood at 36.9 percent in the first-quarter.
Let’s take a look at the ten most underwater housing markets based on Zillow’s effective negative equity rate.