Slower Appreciation Taking a Toll on Equity in Some Markets

Declining property values, while modest and localized, may be taking a toll on homeowner safety margins.  ATTOM Data Solutions has released its first quarter 2019 Home Equity and Underwater Mortgage Report and notes that 5.22 million U.S. properties were underwater at the end of the reporting period.  This represents 9.1 percent of all mortgaged residential properties in the U.S., up from 8.8 percent at the end of the fourth quarter of 2018.

ATTOM defines "underwater" as where the combined balance of loans secured by the property exceeds the property's estimated market value by 25 percent or more, that is has a loan-to-value (LTV) ratio of 125 percent or more..  The number of such properties increased by more than 17,000 compared to the first quarter of 2018 although the share of those homes is down slightly.

On the other hand, the percentage of "equity rich" homeowners, those with an LTV of 50 percent or less, meaning the property owner had at least 50 percent equity, was 25.1 percent in Q1, fractionally lower than in each of the previous two quarters but up from 25.3 percent a year earlier.

"With home prices increasing at a slower pace in 2018, than in previous years, the potential for people to climb out from mortgages that are underwater or advance into equity-rich territory, tends to be reduced," said Todd Teta, chief product officer at ATTOM Data Solutions.

"However, only one in 11 mortgages are seriously underwater today, compared to nearly one in three during the depths of the recession. Although, if the latest trend continues, it will raise another clear signal of a market slowdown, which will be good for buyers, but not so good for sellers. But if the pattern of the past few years takes hold - with levels of underwater and equity rich mortgages turning around - it will mean the market remains strong for sellers, with fewer needing to get out from under financial distress."

States with the highest share of seriously underwater properties were Louisiana (20.7 percent); Mississippi (17.1 percent); Arkansas (16.3 percent); West Virginia (16.2 percent); and Illinois (16.2 percent).  Baton Rough, Scranton, and Youngstown and Toledo Ohio had the highest levels among the 99 metropolitan statistical areas analyzed in the report, all with shares in the 19 to 21 percent range. ATTOM also found 7,639 zip code areas (all of which had ad least 2,500 homes with a mortgage) where more than half of mortgaged properties were seriously underwater.

At the other end of the spectrum, the highest shares of equity rich properties were California (43.0 percent); Hawaii (38.1 percent); New York (34.2 percent); Washington (33.2 percent); and Vermont (32.8 percent).