Despite all the doom and gloom that news outfits (myself included) spew out on a weekly basis, things could actually be a lot worse.
In other words, they actually own half of their home at its present deflated value, and could easily refinance to a lower rate, sell, move on, or move up to a better home.
And nearly half (48.5%) of those with a mortgage have at least a 25 percent stake, putting them in a relatively good position to snag a lower mortgage rate, move on, or stay put, assuming they still have jobs.
But like anything in the real estate world, it’s hard to look at things from a national perspective. You’ve got to take it local.
New York Is the Home Equity Leader
In New York state, nearly half (48.8%) of homeowners have more than 50 percent equity, thanks to their relative affluence and lack of new construction, along with the exploding home prices that came with it.
Conversely, just 7.5 percent of Nevada homeowners have more than 50 percent home equity. And those who do probably purchased their homes years ago, before the boom, and never pulled cash out when prices skyrocketed.
At the same time, 30 percent have underwater mortgages that exceed their current property values by more than 50 percent.
In other words, they can’t refinance or take advantage of a loan modification. And many are probably beyond the point of no return.
Overall, about 58 percent of Nevada borrowers are in a negative equity position, making it the hardest hit state in the nation.
Arizona is a close second with 49 percent of homeowners with a mortgage underwater, followed by Florida at 45 percent.
But more than one in every six Florida homeowners still has 50 percent or higher home equity, as do one in every eight in Arizona.
Home Price Depreciation Drives Default
All these numbers matter because home price depreciation is the largest driver of default.
A new study, conducted by credit scoring company VantageScore, revealed that real estate default rates (missed mortgage payments, foreclosure) were highest in areas with the greatest home price depreciation, regardless of unemployment levels.
In short, the company found that consumers who experienced high home price depreciation and low unemployment had higher default rates than those with high unemployment but low depreciation.
So apparently home values matter more than jobs when it comes to paying the mortgage, meaning banks and mortgage lenders are still missing the mark by not offering principal reductions.
But they clearly don’t want to make any hasty decisions, especially if it creates unrealistic expectations for homeowners going forward.