A few weeks back we commented on the rather disturbing news that repeat foreclosures jumped in January:
According to Black Knight Financial, both new and repeat foreclosures hit a 12-month high during the first month of the year with repeats (i.e. the borrower was rescued but has since entered the foreclosure process again) jumping 11% M/M. More troubling is the trend in repeat foreclosures which accounted for only 15% of total foreclosures during the crisis but now make up a startling 51%.
Here’s what the trend looks like:
Now, a new report from Zillow seems to offer further evidence that the US housing market may not be the picture of health after all (as if we needed more proof after housing starts cratered 17% in February). The percentage of homeowners underwater in the US was flat from Q3 to Q4 which doesn’t sound all that terrible until you consider that this figure had fallen for 10 consecutive quarters. Things look particularly bad in Florida and the midwest where Zillow notes more than 25% of borrowers are sitting in a negative equity position. Here’s more:
In the fourth quarter of 2014, the U.S. negative equity rate – the percentage of all homeowners with a mortgage that are underwater, owing more on their home than it is worth – stood at 16.9 percent, unchanged from the third quarter. Negative equity had fallen quarter-over-quarter for ten straight quarters, or two-and-a-half years, prior to flattening out between Q3 and Q4 of last year…
More than a quarter of mortgaged homes are underwater in some markets in Florida and the Midwest…
Click on the image for interactive version
Zillow goes on to note that we have entered a new era in the US housing market: the era of the underwater homeowner. Even better, the report goes on to note that in a number of cases, borrowers will likely be “in negative equity forever”:
...this represents a major turning point in the housing market. The days in which rapid and fairly uniform home value appreciation contributed to steep drops in negative equity are behind us, and a new normal has arrived. Negative equity, while it may still fall in fits and spurts, is decidedly here to stay, and will impact the market for years to come.
In fact, some homeowners trapped very deeply underwater may essentially be in negative equity forever. And those homeowners are much more likely to own America’s least expensive homes. Making matters worse, many homeowners in the bottom home value tiers are not only underwater, but very far underwater. Consider, for example, homeowners of the least expensive homes in the Detroit metro area. These homeowners are 29 times more likely to owe twice as much than their house is worth compared to a homeowner at the high end of the market.
The good news (and this seems to synch with what we saw in the latest UMich Consumer Sentiment print), is that rich people are doing ok:
Negative equity is not an equal-opportunity predator, and looms larger over less expensive homes. Nationwide, 27.3 percent of homeowners with a mortgage in the bottom one-third of homes by value were underwater in the fourth quarter. The negative equity rate among top-tier homeowners was 9.1 percent. In some areas, this gap was even more distinct. In Atlanta, for example, 49 percent of homes in the bottom-third of home values are in negative equity, compared to 11 percent of mortgaged homes in the highest-valued third.
Now it’s starting to make sense to us why we were having trouble understanding the notion that a “recovery” was well underway in the US. It’s because we didn’t understand that a recovery was usually characterized by an epochal shift towards deeply underwater homeowners and where negative equity becomes a permanent fixture in the market.