A Quick Look at Negative Equity

No other situation prompts a greater chance of foreclosure than when borrowers find themselves with negative equity.  Being “under water,” as it is known, refers to the instance when a borrower has more mortgage debt out against their home than the underlying appraised value of that home.  Negative equity is always an estimate, because appraisals are an inexact science.  Nonetheless, even a back-of-the-envelope calculation with a modest degree of error still yields a reliable gauge on the nominal status.  A borrower is either in the money, or in the red.  it doesn’t make a huge difference if you are down by 30 percent or 20 percent – the negative equity is still hanging over your head and the implications, from a behavioral economics point of view, are still stark.

FirstAmerican Core Logic publishes its own estimates of negative equity.  The state-by-state data is free.  They make their money selling the data on a more narrow basis.  Even the state-level data is informative, though. Here are some interesting findings:

• Average outstanding loan-to-value in Nevada: 114 percent! That means that it is the exception to the rule when a borrower with a mortgage in Nevada is not “under water.” Indeed, FACL reports that 65 percent of all mortgages are in negative equity.
• The Northeast and the Upper Plains are the least likely places for this problem.  In New York, Washington, DC, Rhode Island, Connecticut, Nebraska, and Montana, average outstanding loan-to-value is less than 57 percent. In New York, the figure is less than 50 percent. There is no data on South Dakota, although it seems possible that this is another state that would the lowest ratios.
• More than 47 percent of homeowners in Arizona are in negative equity.
• In Michigan, more than 37 percent are in negative equity.
• Nationwide, more than 10.5 million borrowers owe more on their home than it is worth today.
• Markets with the highest loan-to-value ratios for outstanding mortgages: Las Vegas-Paradise (122 percent), Riverside-San Bernardino-Ontario (103 percent), Orlando-Kissimmee (96 percent) and Phoenix (96 percent).
• High LTVs are in areas with lots of subprime mortgage origination, but also in areas where home prices are depressed by long term job loss: Detroit (89 percent) and Warren-Troy (86 percent).

This data only includes homes with mortgages.