Zillow Report: 4 Million U.S. Homeowners Still Underwater, Nearly 72,000 Upside-Down In Arkansas

Although the Great Recession is in the rear view mirror, there are still more than 4 million U.S. homeowners who owe the bank at least 20% more than their homes are worth, according to the first quarter Zillow Negative Equity Report.

In Arkansas, that number amounts to some 71,603 homeowners who have found themselves underwater as home values have declined nearly 9.5% since the nation emerged from the economic downturn and housing crisis, according to a Zillow analysis provided to Talk Business & Politics.

Using the estimated value of a home to all outstanding mortgage debt and lines of credit associated with the residence, including home equity lines of credit and home equity loans, The Zillow reports show that many U.S. homes would have to appreciate at least 20% for their owners to have any chance of breaking even on a sale. On a positive note, home values are forecasted to continue rising, but at a slower pace than recent years.

“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,” said Zillow Chief Economist Dr. Stan Humphries.

Overall, the Arkansas negative equity rate dropped to 15.4% in the first quarter, the same level as the national rate, the Zillow report shows. A year ago, the Arkansas rate was 16% compared to the national rate at 18.8%. Post-recession, the number of underwater homes in Arkansas peaked in the second quarter of 2012 when 23.6% of the state’s homeowners owed more on their mortgage that their home was worth.

Nationally, 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.

In Arkansas, there are still several counties where more than 20% of homeowners owe more to the bank than the value of the homes. Columbia County in South Arkansas had the highest negative equity rate at 26% in the first quarter. Jefferson and Logan counties were next at 25% and 23%, respectively.

Meanwhile, 19% of homeowners in Pulaski County owed more than their homes were worth, while Benton came in at 20%, well off its peak of 28% a few years ago. Homeowners in Washington and Sebastian counties both saw a negative equity rate of 18%.

On the lower end of the scale, only 7% of homeowners in Stone County had negative equity in the first quarter. Home values in Monroe, Lee and Ashley counties were the only others with negative equity rates in the single digits.

In the state’s largest metro areas, there were 18,574 or 14.7% of homeowners underwater in the Little Rock MSA, amounting to nearly $4 billion in lost equity. Another 2,903 homeowners were delinquent, or three months late on their mortgage payment.

In the Fayetteville area, there were 12,557, or 16.8% of homeowners who had negative equity in their primary place or residence at a cost of just over $1 billion in lost equity. In Fort Smith, that tally amounted to $787 million in lost equity as 8,423, or 17.7% of local homeowners were underwater. The Fayetteville and Fort Smith housing markets had 1,237 and 1,407 delinquencies, respectively.

Rounding out the top eight, Jonesboro, Pine Bluff, Hot Springs, Russellville and Searcy all had lost equity ranging between $100 million and $160 million. Of those cities, the Pine Bluff housing market had the highest rate of negative equity at 22.7%.

According to Zillow, 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 first quarter 2015. Homeowners who remain underwater will likely be the toughest to free from negative equity.

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. 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% of those who own the least valuable third of homes were upside down, compared to about 8% of the most valuable third of homes.

The imbalance was even more pronounced in some markets. In Atlanta, for example, 46% of low-end homeowners were underwater, compared with 10% of high-end homeowners. In Baltimore, 32% of low-end homeowners were in negative equity, compared to 9% of those who own the highest-value homes.

Humphries said that because so much negative equity is concentrated so heavily at the lower end of home values, “it throws a real wrench in the traditional housing market conveyor belt.”

“Potential first-time buyers have difficulty finding affordable homes for sale because those homes are stuck in negative equity. And owners of those homes can’t move up the chain because they’re stuck underwater in the entry-level home they bought years ago,” Humphries said. “The logjam at the bottom is having ripple effects throughout the market, and as home value growth slows, it will be years before it gets cleared up. In the meantime, we’ll be left with volatile prices, limited inventory, tepid demand, elevated foreclosures and a whole lot of frustration.”

Among the 35 largest housing markets, Las Vegas, Chicago and Atlanta had the highest rates of homeowners in negative equity. Smaller shares of homeowners were upside down in Miami and Detroit, but homeowners there were more deeply underwater. In both places, over 60% of homeowners in negative equity were more than 20% underwater.

Overall, U.S. home values have fallen 9.5% since they peaked in 2007, just before the Great Recession. Still, home sales in Arkansas’ four large markets are up almost 7% through April, even with a decline in homes sold in two of Arkansas’ four large metro markets during April, according to The City Wire’s Arkansas Home Sales Report.

Also impressive is that the average sales price in the four markets is up more than 7% and the value of sales is up almost 15% year-to-date. The monthly Arkansas report captures home sales data in the state’s 14 most populated counties within its four largest metro areas — Central Arkansas, the Fort Smith area, Jonesboro/Northeast Arkansas and Northwest Arkansas. The report, which records closed sales, accounts for between 70% and 75% of total Arkansas home sales.

The number of homes sold in the four markets in the January-April period totaled 6,604, up 6.9% from 6,177 in the same period of 2014, and up 11.37% compared to the same period in 2013. In the January-April period, home sales were up 3.56% in central Arkansas, up 7.37% in the Fort Smith metro, up 5.12% in the Jonesboro metro and up 12.23% in Northwest Arkansas.