Slower Appreciation Taking a Toll on Equity in Some Markets

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Declining property values, while modest and localized,
may be taking a toll on homeowner safety margins.  ATTOM Data Solutions has released its first
quarter 2019 Home Equity and Underwater Mortgage Report and notes that 5.22
million U.S. properties were underwater at the end of the reporting
period.  This represents 9.1 percent of
all mortgaged residential properties in the U.S., up from 8.8 percent at the
end of the fourth quarter of 2018.

ATTOM defines “underwater” as where the combined
balance of loans secured by the property exceeds the property’s estimated
market value by 25 percent
or more, that is has a loan-to-value (LTV) ratio of
125 percent or more..  The number of such
properties increased by more than 17,000 compared to the first quarter of 2018
although the share of those homes is down slightly.

On
the other hand, the percentage of “equity rich” homeowners, those with an LTV
of 50 percent or less, meaning the property owner had at
least 50 percent equity, was 25.1 percent in Q1, fractionally lower than in
each of the previous two quarters but up from 25.3 percent a year earlier.

“With home prices increasing at a
slower pace
in 2018, than in previous years, the potential for people to climb
out from mortgages that are underwater or advance into equity-rich territory,
tends to be reduced,” said Todd Teta, chief product officer at ATTOM Data
Solutions.

“However, only one in 11 mortgages
are seriously underwater
today, compared to nearly one in three during the
depths of the recession. Although, if the latest trend continues, it will raise
another clear signal of a market slowdown, which will be good for buyers, but
not so good for sellers. But if the pattern of the past few years takes hold –
with levels of underwater and equity rich mortgages turning around – it will
mean the market remains strong for sellers, with fewer needing to get out from
under financial distress.”

States with the highest share of
seriously underwater properties were Louisiana (20.7 percent); Mississippi
(17.1 percent); Arkansas (16.3 percent); West Virginia (16.2 percent); and
Illinois (16.2 percent).  Baton Rough,
Scranton, and Youngstown and Toledo Ohio had the highest levels among the 99
metropolitan statistical areas analyzed in the report, all with shares in the
19 to 21 percent range. ATTOM also found 7,639 zip code areas (all of which had
ad least 2,500 homes with a mortgage) where more than half of mortgaged
properties were seriously underwater.

At the other end of the spectrum, the
highest shares of equity rich properties were California (43.0 percent); Hawaii
(38.1 percent); New York (34.2 percent); Washington (33.2 percent); and Vermont
(32.8 percent).

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