8.1 Million U.S. Homes Have $1.4 Trillion in Negative Equity in Q3

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According to RealtyTrac's U.S. Home Equity & Underwater Report for the third quarter of 2014, 8.1 million U.S. residential properties 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 15 percent of all properties with a mortgage and an estimated $1.4 trillion in negative equity.

The third quarter negative equity numbers were down to the lowest level since RealtyTrac began reporting negative equity in the first quarter of 2012. In the previous quarter, 9.1 million residential properties representing 17 percent of all properties with a mortgage were seriously underwater, and in the third quarter of 2013 10.7 million residential properties representing 23 percent of all properties with a mortgage were seriously underwater. The recent peak in negative equity was in the second quarter of 2012, when 12.8 million U.S. residential properties representing 29 percent of all properties with a mortgage were seriously underwater.

The universe of equity-rich properties -- those with at least 50 percent equity -- grew to 10.8 million representing 20 percent of all properties with a mortgage in the third quarter, up from 9.9 million representing 19 percent of all properties with a mortgage in the second quarter of 2014. Collectively these equity rich homeowners have an estimated $2.9 trillion in positive equity.

Another 8.5 million properties were on the verge of resurfacing in the third quarter, with between 10 percent negative equity and 10 percent positive equity. This segment represented 16 percent of all properties with a mortgage in the third quarter. That was down from 8.7 million properties representing 17 percent of all properties with a mortgage in the second quarter of 2014.

Corresponding to the decrease in overall properties seriously underwater fewer distressed properties had negative equity in the third quarter, with 39 percent of all properties in the foreclosure process seriously underwater -- down from 44 percent in the second quarter of 2014 and down from 56 percent in the third quarter of 2013. Conversely, the share of foreclosures with positive equity increased to 38 percent in the third quarter, up from 34 percent in the second quarter of 2014.

"The decrease in underwater properties is promising but the estimated $1.4 trillion in negative equity means that the flood waters are not receding as quickly as they were before, corresponding to slowing home price appreciation," said Daren Blomquist, vice president at RealtyTrac. "Slower price appreciation means the 8 million homeowners seriously underwater could still have a long road back to positive equity.

"We wanted to paint a picture of the typical seriously underwater homeowner and what we found was that homeowners who bought or refinanced during the housing bubble (2004 to 2008), own a home worth less than $200,000, live in the Sun Belt or Rust Belt and live in a Democratic Congressional District were more likely to be seriously underwater," Blomquist noted. "On the other end, the highest percentages of equity rich homeowners were those who bought or refinanced between 1994 and 1998, those with properties valued at $500,000 or more, live in NY, CA, DC and these folks also tend to live in Democratic Congressional districts."

Nevada, Florida and Illinois lead the nation with the most markets with negative equity for the fourth consecutive quarter

States with the highest percentage of residential properties seriously underwater in the third quarter of 2014 were Nevada (31 percent), Florida (28 percent), Illinois (26 percent), Michigan (25 percent), and Rhode Island (22 percent).

Major metropolitan statistical areas (population 500,000 or more) with the highest percentage of residential properties seriously underwater were Las Vegas (34 percent), Lakeland, Fla., (34 percent), Palm Bay-Melbourne-Titusville, Fla., (31 percent), Orlando (30 percent), Jacksonville, Fla. (30 percent) and Detroit (29 percent).

Colorado, Montana and Oklahoma top the list for foreclosures with equity

States with the highest percentage of residential properties in the foreclosure process with positive equity were in Colorado (73 percent), Montana (71 percent), and Oklahoma (69 percent).

Major metro areas with more than 50 percent of properties in foreclosure with equity included Denver, Colo. (79 percent), Pittsburgh, Penn. (78 percent), Honolulu, Hawaii (77 percent), Baton Rouge, La. (74 percent) and San Jose, Calif. (73 percent).

Equity rich markets

Major metro areas with the highest percentage of equity rich properties -- those with at least 50 percent equity or more -- were San Jose, Calif., (45 percent), San Francisco, Calif. (41 percent), Honolulu, Hawaii (36 percent), Los Angeles, Calif. (32 percent), and New York, NY (31 percent).

Negative equity by loan date

The highest percentage of seriously underwater homeowners were those who bought or refinanced during the housing bubble, from 2004 - 2008.  On the other end, the highest percentages of equity rich homeowners were those who bought or refinanced between 1994 and 1998.

Equity by estimated value

The highest percentages of seriously underwater homeowners were found at the low end, with homes worth under $200,000. Conversely, homes worth over $500,000 had the lowest percentage of seriously underwater loans and had the highest percentage of equity rich properties.

Financial institutions with the highest amount of homes seriously underwater

As of the end of the third quarter there were 23,702 seriously underwater loans that were originated by Wells Fargo, the most of any loan originators. Following closely is the Bank of America with 20,784 seriously underwater loans. Rounding out the list are government entities (Fannie Mae, Freddie Mac and FHA combined) with 18,094, U.S. Bank with 17,932 and Chase with 13,664 seriously underwater loans.


Equity by political party

With the election on the horizon RealtyTrac examined equity by political party and found that Democratic U.S. Congressional districts have a higher percentage of both extremes: negative equity and equity rich. The Republican districts tend to be in the middle of the spectrum when it comes to home equity.