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CoreLogic Econ


Dollar Volume of Negative Equity Falls $17 Billion in Q1 2014

80 Percent of States Show Declining Shares of Negative Equity

Thomas Vitlo    |    Valuation

According to the latest CoreLogic Equity Report, released today, the negative equity share nationwide fell from 13.4 percent in Q4 2013 to 12.7 percent in Q1 2014, and the number of underwater borrowers decreased from 6.6 million to 6.3 million. The total dollar amount of negative equity was down $17 billion from the end of 2013, falling to $384 billion in Q1 2014.

Quarter over quarter, 40 states exhibited a decrease in negative equity share through Q1 2014, in large part due to growth in home prices across the country. Figure 1 illustrates the 25 states with the highest percentage-point decrease in negative equity share from the previous quarter. Utah fell the most, by 1.9 percentage points from Q4 2013 to Q1 2014, followed by Rhode Island (-1.7 percent), Colorado (-1.7 percent), Arizona (-1.5 percent) and Oregon (-1.4 percent).

Figure 2 illustrates the highest-ranked Core Based Statistical Areas (CBSAs) by negative equity dollars. At the metro level, Chicago, Ill. had the highest amount of total underwater dollars as of Q1 2014 at $20 billion, followed by New York, N.Y. at $17 billion and Los Angeles, Calif. at $12 billion. Of the 10 CBSAs shown in Figure 2, eight have negative equity shares above the national share of 12.7 percent. Los Angeles and New York were the only two CBSAs with shares below the national level, but still make the top 10 list by dollar volume because they are both large and expensive markets with mean home prices of $605,000 and $527,000 as of March 2014, respectively, compared to the national average price of $250,000. These two markets also have some of the deepest underwater borrowers with average amount underwater per property at $96,000 and $127,000, respectively, compared to $61,000 nationally.Also according to the latest CoreLogic analysis, mortgage default rates[1] fell in Q1 2014. Nationally, the number of homes with positive equity had a default rate of 0.6 percent, the same as in the previous quarter. However, homes with negative equity had a default rate of 3.5 percent as of Q1 2014, down from 3.7 percent in Q4 2013.

Negative equity shares show stark differences when broken out by price tiers. Homes valued at less than $100,000, for example, accounted for 14.8 percent of the total negative equity dollars nationally in Q1 2014. Negative equity share for this category was the highest at 25.4 percent, twice the national share of 12.7 percent. Homes valued between $100,000 and $200,000 made up almost a third of the total negative equity dollar amount with a negative equity share of 15.8 percent. On the other end of the scale, homes valued at more than $200,000 made up 54.3 percent of the negative equity dollars nationwide and had a negative equity share of 7.5 percent. This trend suggests that there is a high concentration of negative equity mortgages in the low end of the housing market.

Quarter over quarter, the number of properties that were owner-occupied and had less than 20-percent equity, thus considered under-equitied, decreased by 2.8 percent, or 249,000 homes, to the current level of 8.8 million properties in Q1 2014. Investor properties, similarly, fell by 3.0 percent, or 42,000 homes, quarter over quarter to the current level of 1.4 million homes.

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[1] Default rates are calculated by dividing the number of properties in a group for which a Notice of Default (NOD) has been issued by the total number of properties in the specific cohort group. The result is the default rate for the cohort.