Misery loves company: negative equity edition

Almost half of all mortgage holders in Nevada now owe more than their house is worth. Mindboggling to think about. Basically what that means is if you want to sell your house, you’ve got to write a check to the bank on the day you close. Nationwide, the percentage of homeowners with mortgages underwater is 18.3%, with another 5% on the cusp.

The data aggregator First American CoreLogic put out a state-by-state breakdown today (no link yet, sorry), and at the top of the list are the usual suspects—Nevada (47.8%), Michigan (38.6%), Arizona (29.2%), Florida (29.2%), California (27.4%), Georgia (23.2%), Ohio (22.0%). Mostly we’re talking about states that saw a big price boom and a lot of speculative buying, or states with dismal local economies.

What’s in a way scarier, though, is that First American is also seeing a third group of states emerging—those where a lot of new people moved in and bought houses and simply didn’t have much time to build equity before prices started falling. That partly accounts for why Georgia is so high up on the list, as well as growing problems in Texas (16.5%), Arkansas (16.3%) and Tennessee (15.0%). Other standard drivers of negative equity—a higher than average share of subprime loans and higher average loan-to-value ratio at origination—are also at play.

States with the smallest problems are New York (4.4%), Hawaii (5.6%), Pennsylvania (5.7%), Montana (6.9%), Alabama (7.4%) and Connecticut (7.4%). I should also mention that the survey covers about 80% of outstanding mortgages, and seven states didn’t have enough data to come up with a percentage.

The one state that doesn’t make any sense to me is New Hampshire, where 17.2% of mortgage holders are underwater. Maybe someone out there in America can explain what’s going on in the Granite State.

Barbara!

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Curmudgeon

@Barbara: As a longtime New Hampshire resident, I’ll admit I’m a bit stumped too. I’ll offer a guess that New Hampshire is another one of the states with a heavy influx of people over the last several years, although I don’t have population figures handy. But the southern tier of the state has always been a bedroom community for the Boston area, and as home prices in eastern Massachusetts have grown, perhaps this trend accelerated over the last few years. And I confess that the McMansion species seems to have become popular in new construction in the area, which has perhaps led to new residents overreaching.
bryanfromhouston

Curm,
I think you are indeed correct. As the McMansions become exposed for the overreaching palacial luxuries that they are, we are seeing the fall of that subset of the housing asset class. That is precisely why I was able to buy a new Tundra for what I had paid a few years ago for a used Tacoma truck. Supply and consumption can be fooled some of the time, but it can’t be fooled all of the time.
http://samsrawtruth.blogspot.com/ Sam Spaiser

Hi Barbara,

I was reading a CNN Money article

http://money.cnn.com/2008/10/30/real_estate/underwater_borrowers/index.htm?cnn=yes

and it suggested that maybe New Hampshire could have experienced the underwater loans because of large immigration influx. Its numbers seemed to be in the ball park as other states with this problem, but far away geographically so I’m not sure.

“The third group of states where many borrowers owe more on their homes than they are worth are in trouble mainly because, according to Fleming, they’ve experienced a large influx of immigration.

Newcomers in states like Texas (16.5%), Georgia (23.2%), Arkansas (16.3%), and Tennessee (15%) bought homes recently and simply didn’t have much time to build up equity before prices started to fall he says.”

What do you think?

Sam Spaiser
Barbara Kiviat

Well, folks, I managed to do some reporting (okay, I managed to do some emailing), and here’s what Mark Fleming, First American CoreLogic’s chief economist, had to say: “New Hampshire we currently estimate to have an annualized price decline rate of just over 8%, 12th fastest state in the nation… Declining prices equals rising negative equity.”

Why would house prices in New Hampshire be dropping so drastically? I think Curmudgeon hit the nail on the head. If you consider (at least part of) the New Hampshire real estate market to be an extension of the once-frothy Boston-area, then it all comes together. The Warren Group, a Boston-based real estate data tracker, reported in September that the median home price in Massachusetts dropped 15.6% from a year earlier.
donthelibertariandemocrat

“Basically what that means is if you want to sell your house, you’ve got to write a check to the bank on the day you close.”

Not if you had a credit default swap.
paul lukasiak

I noticed a lot of states that people retire to on the list — are there a lot of older people who bought homes in places like Florida and Nevada among those who are “underwater”?
Donna Thompson

I think that there was a lot of building in the sun belt areas for the expected demand from retiring baby boomers. There was a lot of speculation by people flipping condos and driving up the price. Some of the places were purchased by retirees and some were still held by speculators who could not sell them as prices fell and the foreclosure rate increased.
http://writingfrontier.com Writing Frontier

Great. Now that we know that one half of Nevadan’s are underwater, here’s a piece that describes what’s going to happen to the other half. Enjoy. See

http://writingfrontier.com/2008/10/31/home-sweet-home/
knightal

Well this is a breath of fresh air. I really like what you have to say.
knightal

same thing here in Auz actually seems your all in the same boat
Allan