As Economy Improves, Focus on U.S. Housing Market's $750 Billion in Negative Equity Grows

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According to CoreLogic, as of Q4 2010, there was 11 million or 23% of borrowers who were in a negative equity position.

With the intense housing policy interest around how to deal with negative equity and the importance of equity for future homebuyers, the overview analysis will focus on the distribution of negative equity by lien and default status and on equity distribution.

Aggregate negative equity was $750 billion as of Q4 2010, of which $355 billion is composed of 1st liens alone and $395 billion is composted of 1st liens that have one or more junior liens. First lien only negative equity tends to be more concentrated among lower valued properties relative to properties with multiple liens. Over 38% percent ($135 billion) of first lien aggregate negative equity was in properties valued between $100,000 and $200,000, vs. only 24% ($95 billion) for properties with more than one lien. Nearly 26% ($91 billion) of first lien aggregate negative equity was in properties valued between $300,000 and $700,000, compared to 39% ($154 billion) for properties with multiple liens.

Of the total $750 billion, $60 billion is in foreclosure process with the remaining $690 billion of negative equity being current or not delinquent. Aggregate negative equity for borrowers in foreclosure was concentrated among lower valued properties relative to current borrowers. Thirty percent ($206 billion) of current borrower aggregate negative equity was in properties valued between $100,000 and $200,000 vs. 38% ($24 billion) of borrowers in foreclosure. Over 15% ($107 billion) of current borrowers were in properties valued above $500,000 vs. 10% ($6 billion) for borrowers in foreclosure.

Key CoreLogic Report Findings Include:

• Negative equity is the dominant factor driving the real estate and housing finance markets and, at nearly one quarter of all borrowers, remains stubbornly high.

• Current shadow inventory has declined slightly over the past year, but it will remain elevated for an extend period of time given that there are still over 2 million non-delinquent borrowers not part of the current shadow inventory but in very deep negative equity.

• The positive impact of the tax credit on sales was felt in the lower and upper price bands, but after it expired, sales in the lower price band declined by much more than the upper price band.

• The transition rate of non-delinquent loans into delinquency provides an insight into the future volume of loans at increased risk of default. Price movements have large impacts on new delinquencies and prices are currently declining.

 Source: CoreLogic

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