Despite Rising Home Values, Millions Of Americans Are Still Underwater

April 5, 2016

In 2015, another 1.5 million borrowers were thrown a life preserver of increasing home prices and were pulled from the storm-tossed waters of negative equity. That’s a large number and a very positive sign; however, not all the news is good. There are still 3.2 million homeowners nationwide that owe more on their mortgages than their homes are currently worth, CNBC reports.

The average negative equity rate now sits at 6.5 percent, which is still above the historical norms, but a huge improvement over what was witnessed during the worst of the housing crash. The bigger concern is not just with a negative equity rate that is still above historical norms, but the fact that the majority of negative equity is concentrated at the bottom tier of the housing market. This means that these people would lose money if they were to sell their homes, and consequently are not planning on selling their homes. Not only does this hurt the overall inventory of available houses, but it is these houses, many of them starter homes, that are needed on the market the most right now.

Without more starter homes becoming available, young renters looking to buy are facing an increasingly difficult task. And the problem with negative equity at the low end of the market doesn’t seem to be improving as quickly as needed. At the current rate, it would take upwards of five years for the negative equity rate at the low end of the housing market to reach pre-recession levels. Homes in the top tier of the market (which there is already enough of a supply to meet demand) are on pace to reach 2005 levels twice as quickly.

At 14 percent of borrowers still underwater, Nevada has the largest share of homeowners with negative equity. In terms of cities, Memphis, Cleveland, and St. Louis have negative equity rates at more than 40 percent.

Read more