1-in-3 mortgage holders are ‘underwater’

October 26th, 2009, 1:04 pm · 9 Comments · posted by Mathew Padilla

Area	Neg. Equity	Within 5% NE
OC/LA	35.0%	3.7%
CA	42.0%	3.7%
USA	32.2%	5.5%

First American CoreLogic reports that 35% of mortgage holders in the Orange-Los Angeles area had zero or negative equity (paper profit), in their homes at the end of June.

Another 4% of mortgage holders had just 5% or less equity.

Correction: I had previously posted a chart showing homeowners with “Negative Equity” as separate from those within “5% of Negative Equity.” But a reader pointed out those categories were not mutually exclusive in the report, and I confirmed that with the analyst at First American. The 4% figure in the sentence above this correction and in the table is a mutually exclusive number — I separated the categories. (Don’t ask me why First Am sent out a report with Near Negative Equity containing owners with Negative Equity.)

Another interesting state: 21.9% of owners who live in their home in Orange County have no mortgage at all, according to the U.S. Census Bureau estimate for 2005 to 2007. Here’s a table showing owner-occupied homes with and without mortgages in OC, CA and USA:

Area	No Mortgage	With Mortgage
OC	21.9%	78.1%
CA	23.8%	76.2%
USA	31.8%	68.2%

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lee in irvine says:

October 26, 2009 at 1:24 pm

There are tens of thousands of delinquent home debtors all over Orange County right now. I keep scratching my head, wondering how this is going to end.

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Alpa Chino, Irvine, CA says:

October 26, 2009 at 1:43 pm

Gunner, Where are you?

kerpowski says:

October 26, 2009 at 1:48 pm

Matthew,

They likely have a category with “Near Negative equity” containing homeowners that are within 5% both ways for a combination of two reasons:

- There is a margin of error in estimating home prices so if they under estimate prices by within 5% it shows how much the total negative equity percent will change.

- If there are further home price increases it gives you a perspective on the marginal change in the total negative equity percent when home prices increase by 5%.

I’m assuming their report has a category for “5% or less equity” which would give a similar perspective in the opposite direction.

Mathew Padilla says:

October 26, 2009 at 3:03 pm

That makes sense but it was misleading how they presented it and how I repeated it in the pie chart, which I later deleted.

Their report says in LA/OC 35% of mortgage holders have Negative Equity and 38.7% have Near Negative Equity. But then they noted that Near Negative Equity also included Negative Equity. So in reality only 3.7% have 0-5% Equity. So basically it was just a question of presentation.

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sangell3 says:

October 26, 2009 at 2:34 pm

The remark, equity equals “profit” maybe the reason Californians have less equity in their homes than elsewhere in America.

Equity is not profit, it is the percentage of a house you actually OWN! If you have no equity you own nothing… you merely have a debt obligation!

The data suggests that 42% of Californias own nothing and given the transaction cost of selling a home having less than 5% equity is effectively owning nothing as well which means 45.7% of so-called homeowners are mere debt slaves. This, my friends, is dangerous and makes homeprices unstable.

SC2 says:

October 26, 2009 at 3:46 pm

Rich people renting (and I guess poor people are underwater…) -

http://www.forbes.com/2009/10/23/real-estate-advisor-personal-finance-high-end-rentals.html?ref=patrick.net

Are you wealthy but homeless? Lucky you.

For well-off folks who don’t own a home now and don’t mind renting for a while, this is a something of a golden era. That’s because renting–particularly at the high end–has become such a startlingly good deal in some cities.

Falling rents at the high end reflect the overall trend among landlords across the board. Green Street Advisors, a real estate research firm in Newport Beach, Calif., analyzed data from two firms that follow rents, New York-based REIS and Dallas-based Axiometrics. Green Street calculates that the apartment companies it follows, which include AvalonBay Communities ( AVBPRH - news - people ), Equity Residential ( EQR - news - people ), Essex Property Trust ( ESS - news - people ) and others, will experience 13% to 15% drops in their rental operating income (that’s rent minus property taxes, fix-up costs and other routine expenses) on average during this recession.

Zombie says:

October 27, 2009 at 5:00 am

Right now 36% of the home in america are upside down but if you add the cost of selling these homes it gets closer to 42%. So my guess for California as it is even worse if you factor the cost of selling these homes.

Tex says:

October 27, 2009 at 7:17 am

Housing: Round Trip to Pre-Bubble Prices Underway
(October 26, 2009)
http://www.oftwominds.com/blogoct09/bubble-retrace10-09.html
See graph ‘Median Price of Existing Detached Homes’ California, July 2009: $285,480, Down 19.6% YTY

TD says:

October 28, 2009 at 7:47 pm

I’m impressed that 23% of the OC have no mortgage. I’m one of them and since I lost my job when the bank I was working for shut down 18 months ago, every penny I don’t spend is money saved. I’d be singing the Blues if I actually had to make a payment. I can recall starting the process in 1983 when I bought this old joint. I’m glad I didn’t move up to bigger and newer when I was making some big bucks because I’m not sure it would be better and it sure would not be paid off….

Orange County Register