CoreLogic Releases Equity Report

While the percentage of homes in the United States with negative equity has declined substantially since the fourth quarter of 2013, they experienced a slight increase quarter-over-quarter in Q4 2014, according to CoreLogic's Q4 2014 Equity Report released on Tuesday.

CoreLogic reported that 10.8 percent of all residential homes were underwater in Q4 (about 5.4 million properties), which was down from 13.3 percent  in the same quarter a year earlier – a decline of nearly 19 percent, or 1.2 million homes. The Q4 total was up slightly from the 10.3 percent that was reported for Q3 2014 – an increase of 3.3 percent.

"The share of homeowners that had negative equity increased slightly in the fourth quarter of 2014, reflecting the typical weakness in home values during the final quarter of the year," said Dr. Frank Nothaft, chief economist for CoreLogic. "Our CoreLogic HPI (Home Price Index) dipped 0.7 percent from September to December, and the percent of owners 'underwater' increased to 10.8 percent. However, from December-to-December, the CoreLogic index was up 4.8 percent, and the negative equity share fell by 2.6 percentage points."

Despite the year-over-year decline in the percentage of underwater residential properties, negative equity remains a serious issue, according to Anand Nallathambi, president and CEO of CoreLogic. For the full year of 2014, 1.2 million borrowers regained equity – but nearly five and a half million properties remained in negative equity as of the end of the year after approximately 172,000 homes slipped into negative equity from the third quarter to the fourth quarter in 2014.

Approximately 10 million of the nearly 50 million residential properties with a mortgage in the United States (about 20 percent) have less than 20 percent equity, a condition known as under-equitied. Approximately 1.4 million homes have less than 5 percent equity, a condition referred to as near-negative equity. Aside from the near-negative equity making it difficult to sell their home, underwriting constraints may prevent those with negative equity from obtaining financing to buying a new home, according to CoreLogic.

Falling home prices may result in those with near-negative equity moving into negative equity status; CoreLogic said in the report that about one million homeowners would regain equity if home prices rose by as little as 5 percent.

"We expect the situation to improve over the course of 2015," Nallathambi said. "We project that the CoreLogic HomePrice Index will rise 5 percent in 2015, which will lift about one million homeowners out of negative equity."

The aggregate value of the negative equity for those 5.4 million underwater homes as of the end of 2014 was $349 billion, which was an increase of about $7 billion from the third quarter of 2014, according to CoreLogic. Year-over-year, however, the negative equity aggregate value declined in Q4 by 13.4 percent, down from $403 billion.