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The Geography of Underwater Homes

The Geography of Underwater Homes
Christopher Boswell / Shutterstock.com

Note: This post has been updated since it was first published.

Nearly five years after the market came crashing down, America's housing market is beginning to show signs of recovery. Sales of previously-occupied homes have been tracking upward, as have prices.  

And according to data released today by the by real-estate website Zillow, the share of homeowners who are "underwater" is also starting to slowly improve. The Zillow data tracks the percent of homeowners with negative equity — that is, those who owe more than their homes are worth — and the dollar amount of that negative equity for the United States as a whole and for its metro regions.

While the amount of negative equity declined by $42 billion in the second quarter this year, it remained a whopping $1.15 trillion. Of all homeowners, 15.3 million (30.9 percent) remained underwater in the second quarter, though this was down from 15.7 million homeowners or 31.4 percent in the first quarter.

But the trend remains incredibly uneven across the United States. In more than half of U.S. metros (179 in all), 25 percent or more or homeowners remain underwater. And, there are 22 metros, 6.5 percent of them, where more than half of all homeowners are underwater. Fernley, Nevada has the highest rate of underwater homeowners in the country with 69.7 percent, and Huntingdon, Pennsylvania has the lowest, 4.7 percent.

 Map courtesy of Zara Matheson, data courtesy of Zillow.

The map above by my Martin Prosperity Institute (MPI) colleague Zara Matheson charts the pattern from U.S. metros based on data provided by Zillow.

Underwater homes are concentrated in the Sunbelt, with Florida and California showing especially high concentrations as the map shows.

Looking just at large metros — those with more than one million people — more than two-thirds of homeowners in Las Vegas (68.5 percent) remain underwater.  More than half of homeowners are underwater in Atlanta, Orlando, Phoenix, Riverside, and Jacksonville. And more than 40 percent are underwater in Sacramento, Detroit, Tampa, Miami, and Memphis. 

On the flip side, Rustbelt metros — Buffalo (12.3 percent), Rochester (13.2 percent), and Pittsburgh (15.6 percent) — have the percentages of underwater mortgages of large metros. Oklahoma City (19.5 percent) is next, followed by Boston (19.6 percent), San Jose (20.3 percent), Louisville (20.6 percent), and New York (20.7 percent). In San Francisco, 28.5 percent of homeowners are underwater, in Los Angeles, 28.6 percent, 31.3 percent in greater Washington D.C., and 39.2 percent in Chicago.

Among smaller metros, college towns, whose economies have been more resilient over the course of the crisis, also have smaller shares of underwater homeowners.

Large Metros with the Highest Percentages of Underwater Homes

Rank Region Negative Equity Percent
of Homes w/ Mortgage
1 Las Vegas 68.5%
2 Atlanta 54.4%
3 Orlando 51.9%
4 Phoenix 51.6%
5 Riverside 51.2%
6 Jacksonville 51.2%
7 Sacramento 49.3%
8 Detroit 48.3%
9 Tampa 46.6%
10 Miami-Fort Lauderdale 43.7%

 

Large Metros with the Lowest Percentages of Underwater Homes

Rank Region Negative Equity Percent
of Homes w/ Mortgage
50 Buffalo 12.3%
49 Rochester 13.2%
48 Pittsburgh 15.6%
47 Oklahoma City 19.5%
46 Boston 19.6%
45 San Jose 20.3%
44 Louisville 20.6%
43 New York 20.7%
42 San Antonio 20.8%
41 Hartford 21.4%

 

To shed a light on the factors that might effect these patterns, my colleague Charlotta Mellander ran correlations between the shares of underwater homes and a range of economic and demographic characteristics for U.S. metro regions. As usual, I stress that correlation does not imply causality and other factors we have not looked at may come into play. Still a number of interesting associations emerge from this analysis.

We found two factors to be associated with lower shares of underwater homes. Income was one, as might be expected, but just slightly so. Education levels — the share of adults with college degrees — had a significant, but still very modest association (-.18). 

We found several factors to be associated with higher shares of underwater homes. Of these, two showed reasonably strong correlations. One was the unemployment rate (.66), as might be expected.The share of underwater mortgages was significantly higher in states with higher rates of joblessness.  The other was the share of income devoted to housing costs (.64). The share of underwater homes was modestly associated with the share of immigrants or foreign-born residents (.40). There were slight associations to the size of population (.22) and the Hispanic share of the population (.27).

There was no significant association between underwater homes and poverty. Surprisingly, the share of owners or renters made no difference as well. Neither did the level concentration of high-tech firms or of innovation. Unsurprisingly, however, the share of underwater homeowners had a significant negative association to reported levels of happiness across metros (-.17).

America's housing market remains geographically uneven.  Metros in the Sunbelt, especially in California and Florida, as well Atlanta, and Phoenix continue to have the highest percentages of underwater homeowners.  A number of older Rustbelt metros, with the exception of Detroit so hard hit by the crisis, have among the smallest share of underwater homeowners of large metros.  

The share of underwater homes across metros is associated with several key economic and demographic factors, but the two factors that appear to have played the biggest role are unemployment and the amount of income devoted to housing.

While the housing market seems to be gradually improving, its upswing remains uneven. And for many metros, especially those in the Sunbelt, the grueling problem of underwater mortgages is likely to continue for some time into the future.

Top image: Christopher Boswell / Shutterstock.com

Keywords: Recession

Richard Florida is Co-Founder and Editor at Large at The Atlantic Cities. He's also a Senior Editor at The Atlantic, Director of the Martin Prosperity Institute at the University of Toronto's Rotman School of Management, and Global Research Professor at New York University. He is a frequent speaker to communities, business and professional organizations, and founder of the Creative Class Group, whose current client list can be found here. All posts »

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