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Nearly one third of American mortgages are underwater

“Underwater” is such a gentle way of saying that a homeowner owes more than their homes are worth. “Underwater” is such a politically correct way of describing an experience that is more like drowning or being drowned.

Imagine you’re hosting a party at your house and all of your neighbors are there. Let’s say there are 10 different neighbors with you… three of them most likely are underwater/drowning. Maybe one of them is you.

As home prices continue to slowly slide, rates of homeowners with mortgages that are underwater has risen 23.2% from just a quarter ago to settle at 27% according to search site Zillow.com.

The same report discovered that more than a third of all homes were sold in December at a loss.

“While the tax credits did not hurt the housing market, they did delay its bottom by interrupting the housing correction that was taking place,” said Dr. Stan Humphries, Zillow chief economist. “Home value trends in the fourth quarter remained grim, but the good news is that these declines, while painful in the short-term, mean we’re getting closer to the bottom. The housing recession is likely in its death throes, and we expect to see sales pick up in early 2011. That will lead the way to home values stabilizing and an eventual bottom later this year, although it will take several months of increased sales activity before values begin to respond.”

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Methodology according to Zillow:

(1) The data in Zillow’s Real Estate Market Reports is aggregated from public sources by a number of data providers for 132 Metropolitan Statistical Areas dating back to 1996. Mortgage and home loan data is typically recorded in each county and publicly available through a county recorder’s office.

(2) The Zillow Home Value Index is the median Zestimate® valuation for a given geographic area on a given day and includes the value of all single-family residences, condominiums and cooperatives, regardless of whether they sold within a given period. The Home Value Index at the national level is calculated using a weighted average of the median home value for each county and includes data from 440 metropolitan statistical areas. It is expressed in dollars and is for a particular geographic region.

(3) Foreclosures are defined as a Trustee’s Deed Upon Sale or equivalent transaction.

AG is not affiliated with Zillow.com.

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Lani is the COO and News Director at The American Genius, has co-authored a book, co-founded BASHH, Austin Digital Jobs, Remote Digital Jobs, and is a seasoned business writer and editorialist with a penchant for the irreverent.

17 Comments

17 Comments

  1. Marty Hunt

    February 10, 2011 at 7:31 am

    Lani, while I realize this post is pretty much the comments from Zillow, the example of 3 out of ten homeowners at a party being underwater on their mortgages in inaccurate at best.

    First, all ten of those people would have to be homeowners and well over 30% of all people aren’t so there goes three of the ten “underwater” friends. And take all of those who don’t have mortgages at all…people who own their homes the old fashioned way, outright. I don’t have a stat on how many homes don’t have mortgages but in many areas I suppose 20-30% (or more?) of homeowners own their homes free and clear so there goes a few other neighbors in the party circle of ten who are homeowners and not underwater.

    I suppose in the average group of ten friends got in a circle there would be less than half of the 30% mentioned in the ubiquitous headlines about the number of underwater mortgages. The consumer reads this, as you presented this, that 3 of 10 people are underwater and they don’t consider that five of ten don’t have a mortgage to begin with (renters or free and clears). So while 30% of all mortgages may be underwater, it is a gross overstatement that 3 out of 10 people standing in a circle at my party are “drowning”. Maybe 1.5 would be more accurate.

    It’s not as much fun for Zillow or the news services to promote headlines that 15% of all homes are underwater (when we consider ALL homes). It’s much juicier to say “30% of all home with mortgages are underwater”. It paints a more desperate picture of a very sad and serious situation but I guess it grabs the readers to think 30% of people are drowning when it might actually be half that number.

    In the industry we shouldn’t prmote the gloom and doom and no one seems to point out the fact that 3 of 10 friends really aren’t drowning. And it’s certainly not going to grab eyeballs to say 85% of all people are NOT drowning becuase 30% are renters and maybe another 30% own their homes outright.

    Love AG and your posts!

  2. Andrew Mooers

    February 13, 2011 at 9:05 pm

    Glad you pointed out there are a slew of home owners that have no mortgage. My state is 46th lowest for FSSR (foreclosure, short sale, repossession) tainted, caused home sales. In the best of economies, what is the “standard” percentage of FSSR anyway? It takes putting it all in perspective.

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