Nine Percent of U.S. Homeowners Are Underwater on Their Mortgage

Detroit has the largest share of deeply underwater homeowners

According to Zillow's 2017 Q4 Negative Equity Report, more than a decade after the U.S. housing market collapsed, the recovery has passed another milestone. The share of homeowners who owe more than the value of their home is 9.1 percent, falling below 10 percent for the first time since the housing market fell.

The typical U.S. home lost more than a quarter of its value when the market crashed, sending millions of homeowners into negative equity, when their homes' values were lower than the balances on their mortgages. Now, though, national home values are higher than ever, and many owners who held on to their homes throughout the housing crisis have resurfaced on their mortgages.

Still, despite the progress made as the negative equity rate falls, 4.4 million homeowners remain underwater, and about 713,000 of them owe at least twice as much as their homes' value.

Negative equity acts as a drag on the overall housing market, extending beyond homeowners who are underwater. Low inventory is one of the main factors in driving home values higher, as demand from millennials - the largest group of homebuyers - exceeds the available supply. Underwater homeowners are contributing to this shortage, holding on to their homes instead of selling for a loss.

"For much of the country the Great Recession is an increasingly distant memory - the American economy is booming once again and markets are now shifting their gaze to future downturn risks," said Zillow senior economist Aaron Terrazas. "But scattered in neighborhoods across the country, the legacy of the mid-2000s housing bubble and bust lingers among the millions of Americans still underwater on their mortgages, trapped in their homes with no easy options to regain equity other than waiting. Their struggles mean there are fewer homes on the market for homebuyers today. In corners of the country where home values have been stagnant in recent years, recent homebuyers can easily fall underwater, particularly those who buy with small down payments."

Nationally, roughly one in seven homeowners with a mortgage (15.4 percent) have some equity in their home, but likely not enough to sell and comfortably use the proceeds for a down payment on another home. Including these homeowners with limited equity, the nation's "effective" negative equity rate jumps to 24.6 percent.

Detroit homeowners have the furthest to go to regain positive equity. In the metro, 25.4 percent of homeowners currently in negative equity - or about 22,000 - still owe at least double the value of their home.