Negative equity still a drag on us housing

Las Vegas, where one in four homes remain underwater Photo: Daxis

Despite improvements in the negative equity rate, underwater mortgages are holding back the US housing market from full recovery.

The US negative equity rate continued to drop in the third quarter of 2015, according to Zillow's latest Negative Equity Report. Nationally, 13.4 per cent of homeowners owe more on their mortgage than their home is worth, down from 16.9 percent a year ago.

Negative equity is one of the most persistent reminders of the housing market crash. Homeowners who owe more on their mortgage than their homes are worth cannot sell, which holds back markets from recovering.

Typically, negative equity rates will be close to 2-5 percent. Today, eight years after the housing crash, it remains a major barrier to a full recovery in certain markets. In Las Vegas, for example, almost one in four homeowners remain underwater, and another one in five are effectively underwater, meaning they have less than 20 per cent equity in their home and therefore can't cover the cost of selling their home and buying another.

Las Vegas has been submerged underwater for some time, with the highest negative equity rate in the US for the past four and a half years. Kansas City and Cleveland, with 16.6 and 16.8 per cent negative equity respectively, are not far behind.

San Francisco is one of only large markets where less than 5 per cent of homeowners are underwater - and it is currently feared as entering a potential housing bubble, a sign of just how varied the US property market's recovery is.

"Negative equity has become almost an afterthought in a handful of the nation's hottest markets, but is holding back the recovery in dozens of large markets nationwide," says Zillow Chief Economist Dr. Svenja Gudell.

"Despite steady declines in negative equity, many cities are still facing tight inventory, especially among entry-level homes."