CoreLogic: 24% of residential properties upside down

Feb 23, 2010 22:58 UTC

You don’t keep paying for something that you own.

From FirstAmerican Core Logic:

…more than 11.3 million, or 24 percent, of all residential properties with mortgages were in negative equity at the end of the fourth quarter of 2009, up from 10.7 million and 23 percent at the end of the third quarter of 2009. An additional 2.3 million mortgages were approaching negative equity at the end of last year, meaning they had less than five percent equity. Together, negative equity and near-negative equity mortgages accounted for nearly 29 percent of all residential properties with a mortgage nationwide.

Negative equity means the mortgage balance is higher than the value of the home.

The bulk of underwater properties are concentrated in five states: California, Florida, Nevada, Arizona and Michigan. Nevada leads the way in terms of most homes with negative equity at a whopping 70 percent.

“Home-ownership” is badly defined by, for instance, the Census Bureau, which considers all “owner-occupied housing units” in its calculation of the home-ownership rate.

But the rate would be far lower if one simply calculated the amount of equity that Americans have in their homes. Since this is the portion of real estate for which they don’t pay anything, it is the only portion that is truly “owned.”

Subtract folks who owe more on their homes than they are worth and the home-ownership rate drops from 67% to 43%.

Update: Reader Dan Hess offers a better calculation in the comments. He correctly notes that underwater homes are 24% of homes with mortgages, not 24% of all homes as I implied in the math above. Backing out these homes would reduce the homeownership rate to 57%. Though backing out ALL mortgage debt, even on homes with owner equity, would lower the ownership rate even more.

This isn’t merely academic. Having equity in their homes is a big reason homeowners keep paying their mortgage, which is necessary for banks to stay solvent.

COMMENT

Market analysis based on homeownership

Posted by dogster | Report as abusive

Lunchtime Links 2-2

Feb 2, 2010 19:13 UTC

Homeownership rate falls to 2000 level (CR) At 67.2% it’s still way overstated. Home “ownership” is a misnomer in cases when the owner has withdrawn mortgage equity or when the price of the home has fallen below the principal value of the mortgage. A better measure of homeownership, I think, is just to look at total owner’s equity as a % of household real estate. The most recent Fed Flow of Funds report (page 104, line 50) puts the figure at just 37.6%

U.S. could extend bank fee beyond 10 years, Geithner says (Di Leo/Crittenden, WSJ) The proposed tax on non-deposit liabilities should be permanent, and should target ALL liabilities, including repos. Deposits are guaranteed via FDIC. While that insurance is dramatically underpriced (witness the cash-strapped state of the DIF) at least banks pay something for it. Non-deposit liabilities are also effectively guaranteed, for the biggest banks anyway, via the promise that none which is too big will be allowed to fail. To counter moral hazard, this implicit guarantee must be taxed in order to offset any benefit derived from lower funding costs.

Must-Read: What’s a college degree really worth? (Pilon, WSJ) A lot less than you think, as argued here before. This piece is well-written with lots of good data!

AIG derivatives staff said to forgo $20 million in retention bonuses (Katz/Son, Bloomberg) They’re still well-paid, but this is better than nothing I suppose.

Deficits as a national security issueSanger NYT & Seib WSJ — Good to see prominent columnists picking up the thread. A refresher on the Suez Crisis of 1956 offers helpful background.

Rising FHA default rate foreshadows foreclosure crush (ElBoghdady/Keating, WaPo) Key line: “the FHA projects that it will pay out claims to lenders on one out of every four loans made in 2007 — the worst rate in at least three decades. The claim rate should be nearly the same on the vastly larger volume of loans made in 2008.”

Goldman spokesman’s most withering rebuttals (Daily Intel) Methinks he doth protest too much…

North Korea propaganda, with translations (nikopop)

VIDEO — Reporter filing report on the blindfold half court shot, makes own impossible shot (fox4)

Trader caught taking a break…

COMMENT

A better way to state the point you are trying to make would be to exclude from the “homeownership rate”, the percentage of homeowners who have mortgages that exclude the value of their homes. That is not the same as total owners equity as a percentage of household real estate that you cite from the Flow of Funds Data (e.g., some real estate has no mortgage against it).

However, not every homeowner that is underwater will necessarily ‘walk away’ so even that statistic must be haircut in order to arrive at the appropriate figure for the percentage of american households who have a desire to “own” versus “rent” their dwelling.

Posted by Hookahboy | Report as abusive
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