Over half of underwater homes "nowhere near re-surfacing"

Over half of the underwater homes in the USA are "nowhere near re-surfacing", according to new research from Zillow.

The negative equity rate is dropping, but more than 4 million US homeowners owed the bank at least 20 per cent more than their homes were worth. That means those homes would have to appreciate at least 20 per cent for their owners to have any chance of breaking even on a sale.

Home values are forecast to continue rising, but at a slower pace than recent years.

The national negative equity rate dropped to 15.4 percent in the first quarter. A year ago, the rate was 18.8 percent. The rate of negative equity improved in all of the 35 largest housing markets in the first quarter of 2015, a sign that, metro-by-metro and home-by-home, the country is continuing to recover from the lax lending rules and subsequent housing market bust of the last decade.

At the peak of the real estate crisis, more than 15 million homeowners owed more on their mortgages than their homes were worth, putting them in negative equity. Foreclosures, short sales and rapidly rising home values freed nearly half of those homeowners, leaving 7.9 million homeowners upside down at the end of Q1 2015.

"Spring and summer are the busiest buying and selling seasons, and this year, there is high demand for homes in the bottom third of the market," notes Zillow. "However, a disproportionate number of those homeowners are simply stuck in their homes and can't afford to sell to buyers looking for homes in their price range."

The rate of underwater homeowners was much higher among the homes with the least value. More than 25 per cent of those who own the least valuable third of homes were upside down, compared to about 8 per cent of the most valuable third of homes.

The imbalance was even more pronounced in some markets. In Atlanta, for example, 46 per cent of low-end homeowners were underwater, compared with 10 per cent of high-end homeowners.

"It's great news that the level of negative equity is falling, but what really worries me is the depth of negative equity. Millions of Americans are so far underwater, it's likely they may not re-gain equity for up to a decade or more at these rates," comments Zillow Chief Economist Dr. Stan Humphries.

Photo credit: Michael Patrick