Despite Lower Home Values, 9 out of 10 Homeowners Stick It Out



Any smart student of finance will tell you that it’s not a good idea to owe more on something than what it’s worth. That is why so many homeowners (especially those who had little to no buy-in) have simply walked away from their devalued homes, rather than remain underwater.

Most homeowners prefer to wait things out. Image courtesy of www.FreeDigitalPhotos.net

Despite the problems that the housing market has experienced in recent years, it’s encouraging to note that 90% of homeowners who have a negative equity interest in their homes, continue to pay their mortgages.

Zillow® recently released their Zillow® Negative Equity Report for the first quarter of 2012. In this report, they reveal that nearly a third (31.4%) of U.S. homeowners with mortgages (15.7 million) owed more on their homes than what they were worth.

Nine out of 10 homeowners who are in a negative equity position still continue to make their payments on time. Only 10.1 percent are over 90 days delinquent.

Stan Humphries, Zillow Chief Economist said, “While it was disappointing to see negative equity numbers remain so high, it is important to note that negative equity remains only a paper loss for the vast majority of underwater homeowners. As home values slowly increase and these homeowners continue to pay down their principal, they will surface again.”

“That said,” continued Humphries, “negative equity remains an issue for the housing market as a whole, and poses a risk to any recovery. Not only does negative equity tie many to their homes, by making homeowners unable to move when they want to, but if economic growth slows and unemployment rises, more homeowners will be unable to make timely mortgage payments, increasing delinquency rates and eventually foreclosures.”

The “water’s depth” that many homeowners find themselves in varies. Almost 40% of underwater homeowners (12.4% of mortgaged homeowners) owe from 1 to 20 percent more than their homes’ value. Another 21% (6.6%) owe between 21 and 40 percent more and only about 4.7% (2.4 million) of mortgage homeowners owe double their homes’ value.

Many of these homeowners are in troubled areas such the Las Vegas metro area where an astonishing 26.8% (approximately 90,000) homeowners owe twice what their homes are worth.

To get a strong visual of how these facts play out across the country, Zillow is releasing a data visualization this quarter which shows negative equity levels, right down to the zip code. Check it out here.

It could be easy to get discouraged looking at these numbers in isolation, however it’s not wise to look at any real estate fact singly, but rather look at the market as a whole. Certainly there are areas which are less prosperous than others, however if my years in the industry has taught me nothing else, it’s that the industry is cyclical – what goes down will go up again – the only question is when.

How about your market? Are you seeing growth, or do things seem to be trudging along slowly? Please share your thoughts.