According to Zillow (and their methodogy for calculating “underwater mortgage loans”), US negative equity hit 10.5% in Q4 2016. That is a considerable improvement of the peak of 31.4% in Q1 2012.
But more than 55 percent of all homeowners in negative equity nationwide were underwater by more than 20 percent as of the end of Q4.
Where are the negative equity “zones”? Not on the West Coast. The West Coast is home to all five major metros with the lowest rates of negative equity. As of the end of 2016, Las Vegas and Chicago had the highest rates of negative equity among the largest U.S. metros, with 16.6 and 16.5 percent of homeowners underwater, respectively.
How about EFFECTIVE negative equity rates? Even though a borrower may barely be in positive territory, brokerage fees (say 6%) on sales can push the homeowner into negative territory. The national average for EFFECTIVE negative equity still exceeds 25%.
Let’s compare Washington DC with Prince Georges County in Maryland. The share of homes with a mortgage in negative equity is almost double in PG County compared with DC. The same holds true for the shares in EFFECT negative equity (that is exactly double the rate of Washington DC).
To show how much Phoenix AZ has improved in terms of negative equity, Phoenix now has the same negative equity share as Washington DC: 10.5% and the US. But Maricopa County has a larger EFFECTIVE negative equity share of 27.3%.
But how about Chicago, home of the World Series Champion Chicago Cubs? Negative equity in Chicago is even worse than it is in Prince Georges County in Maryland!
How about Lackawanna County, PA, the home of Scranton and the Dunder-Miflin regional sales office? Even worse negative equity problems than Chicago!!
The WORST negative equity county in the US? Pulaski County in Missouri, home of the US Army’s Fort Leonard Wood with a 47.4% share of negative equity mortgages and 76.1% share of EFFECTIVE negative equity mortgages.
Despite the improvement of negative equity in the US, a number of counties (many rural) are still struggling which is an impediment to both mortgage refinancing and mortgage purchase lending despite near-record low mortgage rates.