Number of Seriously Underwater Properties Drops 525,000 in Q3 2015 From Previous Quarter, Down 1.2 Million From Year Ago

6.9 Million Seriously Underwater Homes, 12.7 Percent of All Homes with Mortgage in Q3;
10.5 Million Equity Rich Homes, Down From Previous Quarter and Year Ago

IRVINE, Calif. — Oct. 22 , 2015 — RealtyTrac® (www.realtytrac.com), the nation’s leading source for comprehensive housing data, today released its Q3 2015 U.S. Home Equity & Underwater Report, which shows that as of the end of the third quarter there were 6,917,673 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 12.7 percent of all properties with a mortgage.

The third quarter underwater numbers were down from 7,443,580 seriously underwater homes representing 13.3 percent of all homes with a mortgage in the previous quarter and at the lowest level for both total mortgages and share of mortgages since RealtyTrac began tracking underwater data in the first quarter of 2012. 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.

As of the end of the third quarter there were 10,476,259 U.S. residential properties that were equity rich — with at least 50 percent equity — 19.2 percent of all properties with a mortgage. That was down from 10,963,041 equity rich properties representing 19.6 percent of all properties with a mortgage in the second quarter and down from 10,812,968 equity rich properties representing 20.1 percent of all properties with a mortgage in the third quarter of 2014.

“After a lull late last year and early this year, home sales volume and average sales prices picked up dramatically again in the second and third quarters of this year, resulting in a substantial drop in seriously underwater homeowners,” said Daren Blomquist, vice president at RealtyTrac. “On the other hand, the number and share of equity rich homeowners also dropped dramatically between the second and third quarters — continuing a trend from the previous two quarters — evidence that more homeowners in this category are leveraging their equity through a refinance, move-up sale or by completely cashing out of the housing market.”

Historical U.S. Underwater & Equity Rich Trends

Qtr-Yr Percent of All Loans Seriously Underwater QoQ Pct Change Percent of Loans Equity Rich QoQ Pct Change
Q1 2012 27.8%
Q2 2012 28.6% 0.8%
Q3 2012 27.6% -1.0%
Q1 2013 25.8% -1.7%
Q2 2013 25.7% -0.1%
Q3 2013 23.2% -2.5%
Q4 2013 18.8% -4.4% 18.5%
Q1 2014 17.5% -1.4% 19.1% 0.6%
Q2 2014 17.2% -0.2% 18.9% -0.2%
Q3 2014 15.0% -2.2% 20.1% 1.2%
Q4 2014 12.7% -2.3% 20.3% 0.2%
Q1 2015 13.2% 0.4% 19.8% -0.5%
Q2 2015 13.3% 0.1% 19.6% -0.2%
Q3 2015 12.7% -0.6% 19.2% -0.4%

One-third of homeowners in foreclosure seriously underwater

The share of distressed properties — those in some stage of the foreclosure — that were underwater at the end of the third quarter were also at the lowest level since the first quarter of 2012. As of the end of the third quarter, 33.4 percent of distressed properties were seriously underwater, down 1 percentage point from the previous quarter and down 5.5 percentage points year over year. Conversely, the share of properties in foreclosure with positive equity increased to 43.4 percent in the third quarter, up slightly from 42.4 percent in the second quarter and up from 38.5 percent in the third quarter of 2014.

Qtr-Yr Percent of Loans in Foreclosure Seriously Underwater QoQ Pct Change Percent of Loans in Foreclosure with Equity QoQ Pct Change
Q1 2012 59.1%
Q2 2012 62.0% 2.9%
Q3 2012 60.0% -1.9%
Q1 2013 58.2% -1.8%
Q2 2013 57.5% -0.8%
Q3 2013 56.3% -1.2% 23.7%
Q4 2013 47.5% -8.8% 30.6% 6.9%
Q1 2014 45.0% -2.5% 35.2% 4.6%
Q2 2014 43.6% -1.4% 34.1% -1.1%
Q3 2014 38.9% -4.7% 38.5% 4.4%
Q4 2014 34.6% -4.2% 42.3% 3.9%
Q1 2015 35.1% 0.4% 42.1% -0.3%
Q2 2015 34.4% -0.7% 42.4% 0.3%
Q3 2015 33.4% -1.1% 43.3% 0.9%

Homes with a higher estimated value are less likely to be seriously underwater

Among properties with an estimated market value under $200,000, 20.2 percent were seriously underwater, while only 5.0 percent of properties with a value exceeding $750,000 were seriously underwater. On the other end of the spectrum, 14.3 percent of properties valued under $200,000 were equity rich, while 38.0 percent of properties valued over $750,000 were equity rich.

Homes owned five to 10 years most likely to be seriously underwater

Among residential properties with a mortgage that have been owned between five and 10 years, 17.2 percent are seriously underwater — the highest share of any years owned range analyzed by RealtyTrac.

On the other end of the spectrum, 39.3 percent of homes owned 20 years or more are equity rich — the highest equity rich share of any years owned range analyzed by RealtyTrac.

Years Owned Range Pct Seriously Underwater Pct Equity Rich
0-1 Year 9.8% 9.1%
1-5 Years 10.6% 12.9%
5-10 Years 17.2% 11.0%
10-15 Years 13.9% 17.3%
15-20 Years 11.2% 27.3%
More than 20 Years 10.1% 39.3%

Markets with the most seriously underwater properties

Out of the top 10 markets with a population greater than 500,000 that had the highest percentage of seriously underwater properties, Florida markets took up six spots in Q3 2015. Top on the list was Lakeland, Florida, (28.0 percent), followed by Las Vegas, Nevada (27.3 percent), Cleveland, Ohio (27.2 percent), Deltona-Daytona Beach, Florida (26.7 percent), Orlando, Florida (25.6 percent), Tampa, Florida (24.3 percent), Toledo, Ohio (24.1 percent), Chicago, Illinois (24,0 percent), Palm Bay, Florida (24.0 percent) and rounding at the top 10 Jacksonville, Florida (23.8 percent).

“Every month this year, thousands of homeowners previously classed as seriously underwater across Ohio, continue to experience growth in personal wealth, due to rising home equity. High demand coupled with rising home prices, as well as monthly rental values, have contributed to a market environment of low inventory,” said Michael Mahon, president at HER Realtors, covering the Cincinnati, Dayton and Columbus markets in Ohio. “Homeowners on the cliff of falling behind in their mortgage payments are strongly encouraged to reach out to their local Realtor, to discuss how increased equity might provide for an opportunity to restructure debt, or a potential sale to pay off debt.”

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 Deltona-Daytona Beach, Florida (58.5 percent),  Las Vegas, Nevada (56.5 percent), Lakeland, Florida (55.8 percent), Palm Bay, Florida (54.1 percent), Cleveland, Ohio (53.4 percent), Chicago, Illinois (52.6 percent), Tampa, Florida (52.3 percent ), and Orlando, Florida (51.7 percent).

“Our South Florida strong real estate sun continues to dry out the distressed properties of yesterday,” said Mike Pappas, CEO and president of the Keyes Company, covering the South Florida real estate market. “As prices continue to rise we see thousands of property owners move into positive equity. This bodes well as our residential home inventory still remains low.”

Markets with the highest share of equity rich properties

Among metropolitan statistical areas with a population of at least 500,000, those with the highest share of equity rich residential properties with a mortgage were San Jose, California (43.9 percent), San Francisco (37.9 percent), Honolulu (36.5 percent), Los Angeles (32.1 percent), and New York (30.4 percent).

“Given the price growth we are seeing in the Seattle housing market, it’s not surprising that equity is growing as well. This is a sign that many owners who were able to hold onto their homes through the housing crisis have recovered much, if not all, of their lost equity,” said Matthew Gardner, chief economist at Windermere Real Estate, covering the Seattle market. “Unfortunately, even though the number of equity rich homeowners is on the rise, this isn’t translating into additional inventory in the Seattle market. As a result, we find ourselves in a proverbial “chicken-and-egg” situation where there are plenty of people who want to sell, but won’t list their home until they can buy something new. But they can’t buy something new until there are more homes for sale. Unfortunately, I see no end in sight to this cycle in the near term.”

Major markets where the share of in-foreclosure properties with positive equity exceeded 60 percent included Denver, Colorado (85.9 percent), Austin, Texas (83.3 percent), Honolulu, Hawaii (79.5 percent), Scranton, Pennsylvania (77.8 percent), San Jose, California (77.3 percent), Pittsburgh, Pennsylvania (75.9 percent), McAllen, Texas (75.6 percent), Baton Rouge, Louisiana (71.6 percent) and Nashville, Tennessee (71.4 percent).

“Colorado’s escalating market may allow those homeowners facing foreclosure to have their cake and eat it too. Many property owners underwater today have viable options that were unheard of during the last downturn,” said Al Detmer, broker associate at RE/MAX Alliance, covering the Greeley market in Colorado. “Increased property values and low interest rates may allow an owner to both recoup their losses while paying down other debts with cash outs or by refinancing.”

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.

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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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