A rising tide does not necessarily raise every boat — just the ones big enough to catch the waves. Despite a strong rebound in home prices on a national level in recent years, borrowers at the bottom of the market are experiencing a decline in home values. In fact, millions of Americans still remain trapped, underwater with their mortgages.
At the crest of the real estate crisis, more than 15 million homeowners owed more on their mortgages than their homes were worth, placing them underwater (negative equity). Over the past three years, foreclosures, short sales, and rising home prices have freed almost half of these borrowers, but a turning point may be taking place. Instead of steady, gradual improvement, home values are stalling out across various regions of the country.
Nationally, 16.9% of all homes with a mortgage in the fourth quarter were underwater, unchanged from the previous quarter, according to a new analysis from Zillow. Furthermore, the negative equity rate worsened in 21 of the top 50 U.S. markets.
“Higher negative equity rates have become the new normal,” said Zillow Chief Economist Dr. Stan Humphries. “We’ve long been expecting the negative equity rate to fall more slowly as home value growth also slows, and unfortunately that’s exactly what we’re seeing. Compounding the problem is the fact that negative equity is decidedly not an equal opportunity predator, and looms larger over the bottom 10% of homes, where homeowners are least prepared to withstand the assault.”
Let’s take a look at the ten most underwater housing markets in America.