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Housing Units with Negative Equity, 1997-2009

This research study analyzes trends in negative equity and distressed sales in US housing units from 1997 to 2009 using data from the American Housing Survey and First American CoreLogic. The study aims to understand the persistence of underwater status over time and its impact on the housing market.

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Housing Units with Negative Equity, 1997-2009

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  1. Housing Units with Negative Equity, 1997-2009 George R. Carter III, Ph.D. U.S. Census Bureau HUD Data Users Conference Washington, DC March 8, 2011

  2. Disclaimer This presentation is intended to inform interested parties of ongoing research and to encourage discussion of work in progress. The views expressed on methodological, technical and operational issues are those of the author and not necessarily those of the U.S. Census Bureau.

  3. Introduction • Homeownership rates rose in the US until 2004 • Home prices peaked in the US in 2006 • Home prices have since fallen at the National level • An increasing number of homeowners are “underwater” • First American CoreLogic estimates 24% of residential properties with mortgages were “underwater” at the end of the first quarter of 2010

  4. Research Study Study Goals • Cross Sectional Analyses • Trends in negative equity since 1997 • Longitudinal Analyses • Persistence of underwater status over time • Prevalence of distressed sales since 1999

  5. Data • American Housing Survey (AHS) • National Internal Files • Cross-Sectional: 1997-2009 • Longitudinal: (1997,1999); (1999,2001); (2001,2003); (2003,2005); (2005,2007); and (2007,2009) • Variables of Interest • Home Value • Mortgage Characteristics • Number of mortgages and loans • Year mortgage obtained • Original amount borrowed • Term • Current interest rate • Purchase Price • Housing and Householder Characteristics

  6. What does it mean to be “underwater”? • Measurement of home equity • Home Equity = Home Value – Outstanding Principal • Self-reported in the AHS • “Underwater” homes have negative equity • Home Value < Outstanding Principal • Effect of “underwater” homes on housing market • Reduced wealth accumulation • Reduced household mobility • Mortgage default • Continuing price declines

  7. What is a distressed sale? • From Bank’s Perspective • Sale that doesn’t cover existing mortgage debt (short sale) • From Owner’s Perspective • Sale that doesn’t cover existing mortgage debt and downpayment • Measurement of distressed sales • Purchase price of new owner ≤ outstanding principal of prior owner

  8. Literature-Home Value • AHS collects self-reported home values • Validity and Reliability • Home values in AHS are 5.1 percent higher than actual sales prices • Estimates are reliable, but consistently overestimate home value (Kiel and Zabel 1999) • Overestimates of home value could depress estimates of negative equity • May be less of a problem for respondents who purchased during soft housing markets (Benitez-Silva et al. 2008)

  9. Literature-Negative Equity, Mobility, and Distressed Sales • Negative Equity and Household Mobility • Owners with negative equity one third less mobile than owners with positive equity (Ferreira, Gyourko, and Tracy 2010) • Negative Equity and Default • Negative equity positively correlated with default (Van Order and Zorn 2000)

  10. S&P / Case-Shiller 10 City Index, 1987-2010

  11. Trends in Home Value and Outstanding Principal, 1997-2009

  12. Percent Underwater Overall, 1997-2009

  13. Percent Underwater by Region, 1997-2009

  14. Percent Underwater by Race of Householder, 1997-2009

  15. Percent Underwater by Hispanic Origin of Householder, 1997-2009

  16. Percent Underwater by Age of Householder, 1997-2009

  17. Percent Underwater by Marital Status of Householder, 1997-2009

  18. Percent Underwater by Education Level of Householder, 1997-2009

  19. Percent Underwater by Household Income Quintile, 1997-2009

  20. Percent Underwater by Interest Rate of First Mortgage, 1997-2009

  21. Percent Underwater by Mortgage Type of First Mortgage, 1997-2009

  22. Percent Underwater by First Time Homeowner Status, 1997-2009

  23. Percent Underwater by Building Type, 1997-2009

  24. Negative Equity Persistence

  25. Prevalence of Distressed Sales

  26. Summary • Across-the-board increases in underwater units in 2009, except for manufactured/mobile homes • Higher persistence of underwater status in 2009 than 2007 • Higher percentages of distressed sales in 2009 than 2007 • Estimates of underwater units lower than CoreLogic’s estimates • AHS • Self-reported home value and mortgage data • Owner-occupied homes • First American CoreLogic-Value and Outstanding Principal • Automated Valuation Models (AVM) and public record data on mortgage debt outstanding • Single family properties • Owned and rented • Occupied and vacant

  27. Future Research • Model Distressed Sales on Negative Equity and Housing Burdens in Prior Survey Year • Longitudinal Weighting • Longitudinal Editing

  28. Contact Information George Carter: george.r.carter.LLL@census.gov

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