Fewer U.S. mortgages underwater in 2015, but Arkansas numbers rise

Roughly 6.4 million U.S. homes were seriously underwater – worth 25% less than the mortgage owed – at the end of 2015, which is 11.5% of all properties with a mortgage. Arkansas reported 12% of its homes were seriously underwater at the end of 2015.

Underwater U.S. properties declined by 9.2% from 2014. The rate is down 50% from the market peak in the second quarter of 2012, according to Irvine-based RealtyTrac.

Neighboring Oklahoma was lower at 9%, while Missouri was higher at 14.7%.

“Over the past three and a half years, the number of seriously underwater properties has been cut in half, but we continue to deal with a long tail of seriously underwater properties, and it will likely be another five years at least before most of those remaining underwater properties move into positive equity territory,” Daren Blomquist, vice president at RealtyTrac, said in the report.

While the nation’s data shows underwater mortgages are declining, Arkansas bucked that trend with the rate of seriously underwater property’s climbing from 10.4% from the end of 2014. However, the RealtyTrac did not include all of the Arkansas counties, it only included data for Northwest Arkansas and Central Arkansas.

Northwest Arkansas reported 15.4% of its mortgages were seriously underwater, with 69.2% of homeowners having recovered equity in their homes. In the Little Rock metro area the underwater rate ranged from 18.2% in Pulaski County to 13.3% in Faulkner and Garland counties. Properties with equity were 68.2% in Pulaski County, 63.3% in Faulkner County and a high 80% in Garland County.

UNDERWATER PROFILE
RealtyTrac said the profile of homes which are worth at least 25% less than the mortgage owed have several common characteristics. Age is one issue, with 63% of these homes purchased in 2008 or earlier when home prices were coming off of their historical highs, and home equity loans were easier to obtain.

More than one in two of these homes have been owned 10 years or less, while 43% have been owned more than a decade. Also, 41% of the homes were non-owner occupied, meaning they were investment properties. Lastly, one in three of the homes are valued at less than $100,000, far below the U.S. mean home price of $288,900 as of December 2015.

One of the bright spots in the real estate market during the past two years has been rising home prices amid smaller inventories of homes for sale. Blomquist said the growing number of equity rich properties reflects a flat move-up market and restrained leveraging of home equity by U.S. homeowners.

RealtyTrac defines “equity rich” as homeowners who owe 25% less on their mortgages than the market price. There were 12.6 million equity rich U.S. properties at the end of 2015. Roughly 23% of them are non-owner occupied or investment properties. About 62% of the equity rich homes have been owned for than 10 years. About half of them were purchased prior to 2009, and 47% of all the properties were valued in excess of $1 million.

As rising prices help all homeowners, Blomquist said, 49.7% of homes in foreclosure at the end of 2015 had some equity. This compared to 34.6% of all homes in foreclosure with equity as of the end of 2014.

“The increase in equity in 2015 was the enabling factor in assisting some less fortunate homeowners – such as those troubled by divorce, health, or job loss events – the ability to avoid foreclosure by taking advantage of market conditions in the sale or refinance of their properties,” said Michael Mahon, president of Ohio-based HER Realtors.