America’s negative equity hotspots exposed: Fascinating study reveals where homeowners are most at risk of going underwater on their loans
Nearly half of US states are becoming negative equity hot spots, with about one in 20 homeowners going underwater on their mortgage, according to a new study.
Overall, U.S. household net worth increased by $1.1 trillion in the third quarter of 2023 compared to the same period in 2022, reversing a trend seen earlier in the year. The number of homes with negative equity also fell by 7.7 percent, according to a report from the real estate analysis company. CoreLogic.
However, a troubling pattern is emerging: 23 states have “high” or “very high” rates of homeowners experiencing this problem, with Louisiana residents hit the hardest.
Negative equity occurs when a person’s outstanding mortgage balance exceeds the value of their home.
In a strong market, properties should appreciate in value over time, meaning borrowers have little risk of ending up in negative equity.
However, a troubling pattern is emerging: 23 states have “high” or “very high” rates of homeowners facing this problem, with Louisiana residents hit the hardest.
However, when prices begin to fall and interest rates rise, those with a small down payment are at the greatest risk of going underwater.
A drop in negative equity can make it difficult to sell or refinance a home, leaving many trapped in their property. The problem escalated into a crisis during the 2008 financial crash, when house prices plummeted overnight.
According to CoreLogic’s analysis, there are three states that have a “very high” proportion of homeowners at risk of flooding.
Louisiana came out on top as 6.1 percent of its residents who own a mortgage have negative equity. It is followed by Oklahoma and Iowa, where 4.1 percent and 4.9 percent of citizens, respectively, face this problem.
Another 20 states were found to have “high” levels of negative equity, meaning more than 2 percent of residents were affected.
Among them: New Mexico, Alabama, Pennsylvania, New York and Maine.
Despite this, the report paints an overall positive picture of rising home values in America.
Between July and September, the average homeowner earned more than $20,000 compared to the same period last year.
Homeowners in Hawaii, California and Massachusetts saw the biggest gains, with their property values increasing by an average of $45,000 or more.
The recovery was credited to the surprising resilience of the US real estate market after mortgage rates fell to 8 percent.
A new report from real estate portal Realtor.com predicts that prices and mortgages will decline next year, albeit modestly.
That’s in stark contrast to the first quarter of the year, when the average homeowner saw their equity drop by $5,400 compared to the same period a year earlier.
The recovery was attributed to the surprising resilience of the US real estate market after mortgage rates fell to 8 percent. They now hover at 6.67 percent, according to the government-backed lender. Freddie Mac.
The high rates were expected to leave cold water on red-hot prices as most buyers took out 30-year mortgages when rates were at record lows. Moving your home will mean adding, on average, about $1,000 to your monthly mortgage payments.
However, due to the lack of affordable housing, prices remain abnormally high. Data from real estate portal Redfin shows the average U.S. home sold for $408,732 in November, up 3.7 percent from the same period last year.
Dr. Selma Hepp, chief economist at CoreLogic, said: “As rising prices continue to help homeowners build wealth, equity reached new highs and recouped losses from last year’s decline.
“And while the average U.S. homeowner gained more than $20,000 in additional equity compared to the third quarter of 2022, some markets are seeing larger gains as price increases accelerate.”