The number of homeowners with negative equity (2.2 million as of the end of November) has been falling steadily since it peaked in 2012 as home prices bottomed out and is now at its lowest point in a decade, according to Black Knight Financial Services. At the same time, the aggregate amount of homeowner equity in the U.S. ($4.6 billion as of the end of November) is at its highest point in a decade.
Since home prices have been rising steadily since 2012 and are now at or past pre-crisis peaks in many areas, the result has been a corresponding steady rise in homeowner equity. Nonetheless, large numbers of homeowners in some areas of the country remain underwater, and in particular, some demographics are having a more difficult time regaining home equity, according to a recent analysis from Zillow.
Zillow reported that 10.9 percent of U.S. homeowners were underwater as of the end of the third quarter, but the share was higher in predominantly black and Hispanic Census tracts compared with areas composed of primarily white residents. The negative equity rate for areas where most residents were white was 9.9 percent at the end of Q3 compared to 20 percent for majority black communities and 12 percent for majority Hispanic communities, according to Zillow. For communities where no race had a majority, the rate was 11.9 percent.
According to Zillow, home price appreciation which has been strong since 2012 on a nationwide basis but has been slower than the national average in some communities were a majority of residents are black or Hispanic, which has prevented homeowners in these communities from getting above water.
“Negative equity is not an equal opportunity offender, with certain markets still being more affected than others,” said Zillow Chief Economist Dr. Svenja Gudell. “Our previous research has shown that negative equity is more concentrated among less expensive homes, and now we know that it is also more prevalent in minority neighborhoods than in white communities, which are also trailing in the overall housing recovery. These gaps can and will have long lasting implications for growth and equality.”
Specifically, negative equity has the potential to adversely affect the entire housing market. Underwater homeowners generally cannot sell their homes (unless they take a loss), and a large number of them translates to fewer homes for sale, which leaves potential buyers with fewer options, according to Zillow.
Click here to view Zillow’s complete analysis.