Nevada leads all states with a mortgage LTV of 118 percent
CoreLogic released its data analysis for the fourth quarter of 2010 showing that mortgage distress is still very widespread and that negative equity is the norm in many states in the U.S. (Hat tip Yves Smith). The data showed that the owners on a full 11.1 million residential properties (23 percent of the total) were upside down i.e. had negative equity. The situation was most severe in the bubble markets and Michigan, with Nevada leading the pack.
CoreLogic highlighted the following data points:
- Nevada had highest percentage of residential property with negative equity at 65% of all mortgaged properties. It was followed in order by Arizona (51%), Florida (47%), Michigan (36%) and California (32%).
- On loan-to-value (LTV) ratios, Nevada was again in pole position. Nevada’s average LTV across all residential properties with an outstanding mortgage was 118%. That is to say, the average property with a mortgage was underwater by 18%. Next in order for average LTV were Arizona (95%), Florida (91%), Michigan (84%), and Georgia (81%).
- The states with the lowest LTV ratios for existing mortgages were New York (50%), Hawaii (54%), DC (58%), Connecticut (60%), and North Dakota (60%).
- The total aggregate level of negative equity increased to $751 billion by the end of Q4 2010, up from $744 billion in the previous quarter. Because property prices had started to increase in 2010 this is still below the $800 billion figure in Q4 2010. CoreLogic notes that over $450 billion of the negative equity dollars include borrowers who are upside down by more than 50 percent.
Even in an economic upturn, these figures should be frightening. I don’t have the data, but comparisons to the UK in 1991-1996 or Hong Kong in 1998-2003 would be telling. These economies were eventually able to recover from severe house price declines. In the UK example, there were no intervening recessions as the house price recovery took hold. I am not sure about the Hong Kong example.
What is clear from the data is that another recession in the U.S. would have knock-on effects for housing. And given the high levels of negative equity, this would crystallize losses for banks at a much greater rate than we are presently seeing, despite the renewed decline in house prices.
Right now, however, mortgage applications are at their highest level in three months. So there is still some life left in the mortgage market, especially in places like Washington D.C. which has not suffered renewed price declines.