Share of Seriously Underwater Foreclosure Properties Drops to New Low in Q2 2015

Overall Seriously Underwater Share Edges Higher For Second Straight Quarter;
Number of Equity Rich Homeowners with a Mortgage Increases by 1 Million From Year Ago, But Down 300,000 in First Six Months of 2015

IRVINE, Calif. — July 30, 2015 — RealtyTrac® (www.realtytrac.com), the nation’s leading source for comprehensive housing data, today released its Q2 2015 U.S. Home Equity & Underwater Report, which shows that as of the end of the second quarter there were 7,443,580 U.S. residential properties that were seriously underwater — where the combined loan amount secured by the property is at least 25 percent higher than the property’s estimated market value — representing 13.3 percent of all properties with a mortgage.

The second quarter underwater numbers were up from 7,341,922 seriously underwater homes representing 13.2 percent of all homes with a mortgage in the previous quarter — making Q2 the second consecutive quarter with a slight increase in both the number and share of seriously underwater properties — but were down from 9,074,449 seriously underwater properties representing 17.2 percent of all homes with a mortgage in the second quarter of 2014. The number and share of seriously underwater homes peaked in the second quarter of 2012 at 12,824,729 seriously homes representing 28.6 percent of all homes with a mortgage.

“Slowing home price appreciation in 2015 has resulted in the share of seriously underwater properties plateauing at about 13 percent of all properties with a mortgage,” said Daren Blomquist, vice president at RealtyTrac. “However, the share of homeowners with the double-whammy of seriously underwater properties that are also in foreclosure is continuing to decrease and is now at the lowest level we’ve seen since we began tracking that metric in the first quarter of 2012.”

The share of distressed properties — those in some stage of the foreclosure process — that were seriously underwater at the end of the second quarter was 34.4 percent, down from 35.1 percent in the first quarter of 2015 and down from 43.6 percent in the second quarter of 2014 to the lowest level since tracking began in the first quarter of 2012. Conversely, the share of foreclosures with positive equity increased to 42.4 percent in the second quarter, up slightly from 42.1 percent in the first quarter and up from 34.1 percent in the second quarter of 2014.

Historical U.S. Underwater Trends 

Qtr-Yr Percent of All Loans Seriously Underwater QoQ Pct Change Percent of Loans in Foreclosure Seriously Underwater QoQ Pct Change
Q1 2012 27.8% 59.1%
Q2 2012 28.6% 0.8% 62.0% 2.9%
Q3 2012 27.6% -1.0% 60.0% -1.9%
Q1 2013 25.8% -1.7% 58.2% -1.8%
Q2 2013 25.7% -0.1% 57.5% -0.8%
Q3 2013 23.2% -2.5% 56.3% -1.2%
Q4 2013 18.8% -4.4% 47.5% -8.8%
Q1 2014 17.5% -1.4% 45.0% -2.5%
Q2 2014 17.2% -0.2% 43.6% -1.4%
Q3 2014 15.0% -2.2% 38.9% -4.7%
Q4 2014 12.7% -2.3% 34.6% -4.2%
Q1 2015 13.2% 0.4% 35.1% 0.4%
Q2 2015 13.3% 0.1% 34.4% -0.7%

Share of equity rich mortgaged properties up 1 million from year ago, down 300K YTD

The universe of equity-rich mortgaged properties — those with at least 50 percent equity — decreased on a quarter-over-quarter basis for the second straight quarter, down to 10.9 million representing 19.6 percent of all properties with a mortgage at the end of the second quarter. That was down from 11.1 million representing 19.8 percent at the end of the first quarter and down from 11.3 million representing 20.3 percent at the end of the fourth quarter, but still up from 9.9 million representing 18.9 percent at the end of the second quarter of 2014.

“Although the number of equity rich homeowners with a mortgage has increased by 1 million compared to a year ago, that number dropped by nearly 300,000 between the end of 2014 and the middle of 2015,” Blomquist added. “The number of homeowners with a mortgage who have at least 20 percent equity has dropped by more than 900,000 during the past six months, indicating that homeowners who have gained substantial equity thanks to the housing price recovery over the past three years are taking advantage of that newfound equity. Some are leveraging that equity into a higher LTV refinance or a move-up purchase, some may be downsizing into an all-cash purchase and some may be cashing out of homeownership altogether. Those homeowners cashing out of homeownership altogether would explain why the nation’s overall homeownership rate continued to decline in the second quarter even as homeownership rates among millennials increased.”

Major metro areas with the highest percentage of equity rich properties reflect areas of continued growth in home prices: San Jose, California (43.8 percent), San Francisco, California (38.3 percent), Honolulu, Hawaii (36.7 percent), Los Angeles, California (32 percent), New York (30.7 percent), Pittsburgh, Pennsylvania (29.4 percent), Poughkeepsie, New York (28.0 percent), Oxnard, California (27.5 percent) and San Diego, California (26.9 percent).

“Over the past two years, the Seattle region has seen the percentage of homeowners who are seriously underwater drop by over 56 percent, one of the fastest and most impressive drops in the country,” said Matthew Gardner, chief economist at Windermere Real Estate, covering the Seattle market. “Usually a decline of this magnitude would suggest an uptick in the number of homes for sale, but unfortunately for Seattle, I don’t see this taking place. Many of these homeowners are simply too apprehensive or don’t have the financial capacity to move. But what we lose in new listings, we gain in overall market stability.”

Historical U.S. Home Equity Rich Trends 

Qtr-Yr Percent of Equity Rich Mortgaged Homes QoQ Pct Change
Q4 2013 18.5%
Q1 2014 19.1% 0.7%
Q2 2014 18.9% -0.3%
Q3 2014 20.1% 1.2%
Q4 2014 20.3% 0.2%
Q1 2015 19.8% -0.5%
Q2 2015 19.6% -0.2%

Markets with the most seriously underwater properties

Markets with a population greater than 500,000 with the highest percentage of seriously underwater properties in Q2 2015 were Lakeland, Florida, (28.5 percent), Cleveland, Ohio (28.2 percent), Las Vegas, Nevada (27.9 percent), Akron, Ohio (27.3 percent), Orlando, Florida (26.1 percent), Tampa, Florida (24.8 percent), Chicago, Illinois (24.8 percent), Palm Bay, Florida (24.4 percent) and Toledo, Ohio (24.3 percent).

Markets where the share of distressed properties —  those in some stage of foreclosure —  that were  seriously underwater exceeded 50 percent in the second quarter of 2015 included Las Vegas, Nevada (57.7 percent), Lakeland, Florida (54.8 percent), Cleveland, Ohio (52.9 percent), Chicago, Illinois (52.5 percent), Tampa, Florida (51.7 percent ), Palm Bay, Florida (51.5 percent), and Orlando, Florida (51.2 percent).

“Many consumers in foreclosure don’t understand the positive effects of the increased equity we are seeing across the Ohio markets, and the opportunities that this might bring in assisting them to avoid foreclosure,” said Michael Mahon, president at HER Realtors, covering the Cincinnati, Dayton and Columbus markets in Ohio. “Across much of Ohio, housing demand is driving increased prices and lower days on the market, contributing to positive equity growth. For homeowners facing troubled financial circumstances due to job loss, divorce, death in the family, or health concerns, the best advice would be to consult with a real estate agent early in the process.”

Markets with the highest share of positive equity foreclosures

Those states with the highest percent of distressed properties with positive equity included Colorado (72.0 percent), Alaska (69.8 percent), Texas (66.4 percent), Oklahoma (65.2 percent), and Nebraska (64.4 percent).

Major markets where the share of distressed properties with positive equity exceeded 60 percent included Denver, Colorado (83.7 percent), Austin, Texas (83.1percent), Honolulu, Hawaii (77.5 percent), San Jose, California (77 percent), Pittsburgh, Pennsylvania (75.9 percent), Jackson Mississippi (75 percent), Nashville, Tennessee (69.3 percent) and Houston, Texas (69 percent).

“The strong South Florida price increases over the past few years have moved many homeowners from negative to positive equity. We would encourage the remaining distressed homeowners to ask for a Broker Price Opinion (BPO) regarding the value of their property — many may be surprised at their improving value,” said Mike Pappas, CEO and president of Keyes Company, covering the South Florida market.

“Many homeowners that found themselves upside down in their homes just a few years ago are finding that they are now in a much better position with equity to spare, based on the strong appreciation we have experienced over the last few years,” said Greg Smith, owner/broker at RE/MAX Alliance, covering the Denver market in Colorado.  “When we look at other areas, such as Las Vegas, where homes seriously underwater have dropped by close to 50 percent, we see the strengthening of the economy as a whole provided by housing.”

Homes owned seven to 11 years account for 38 percent of all seriously underwater homes

Residential properties owned between seven years and 11 years accounted for 38 percent of all seriously underwater homes as of the end of the second quarter. The highest seriously underwater rate is for homes owned for nine years, 21.6 percent of which are seriously underwater, followed by those owned for 10 years, 19.8 percent of which are seriously underwater, and those owned for eight years, 19.0 percent of which are seriously underwater.

Report methodology
The RealtyTrac U.S. Home Equity & Underwater report provides counts of residential properties based on several categories of equity — or loan to value (LTV) — at the state, metro and county level, along with the percentage of total residential properties with a mortgage that each equity category represents. The equity/LTV calculation is derived from a combination of record-level open loan data and record-level estimated property value data, and is also matched against record-level foreclosure data to determine foreclosure status for each equity/LTV category.

Definitions

Seriously underwater: Loan to value ratio of 125 percent or above, meaning the homeowner owed at least 25 percent more than the estimated market value of the property.

Equity rich: Loan to value ratio of 50 percent or lower, meaning the homeowner had at least 50 percent equity.

Foreclosures w/equity: Properties in some stage of the foreclosure process (default or scheduled for auction, not including bank-owned) where the loan to value ratio was 100 percent or lower.

Report License                                                                                                     

The RealtyTrac U.S. Foreclosure Market Report is the result of a proprietary evaluation of information compiled by RealtyTrac; the report and any of the information in whole or in part can only be quoted, copied, published, re-published, distributed and/or re-distributed or used in any manner if the user specifically references RealtyTrac as the source for said report and/or any of the information set forth within the report.

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About RealtyTrac
RealtyTrac is a leading provider of comprehensive U.S. housing and property data, including nationwide parcel-level records for more than 130 million U.S. properties. Detailed data attributes include property characteristics, tax assessor data, sales and mortgage deed records, distressed data, including default, foreclosure and auctions status, and Automated Valuation Models (AVMs). Sourced from RealtyTrac subsidiary Homefacts.com, the company’s proprietary national neighborhood-level database includes more than 50 key local and neighborhood level dynamics for residential properties, providing unrivaled pre-diligence capabilities and a parcel risk database for portfolio analysis. RealtyTrac’s data is widely viewed as the industry standard and, as such, is relied upon by real estate professionals and service providers, marketers and financial institutions, as well as the Federal Reserve, U.S. Treasury Department, HUD, state housing and banking departments, investment funds and tens of millions of consumers.

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