Housing Units With Negative Equity, 1997 to 2009

Homeownership rates in the United States¹ increased between 1997 and 2004 and by 2007 had declined from 2004 levels. Home prices peaked in 2006 and have since fallen at the national level.² According to First American CoreLogic, an increasing number of homeowners are "under water." Underwater homeowners have negative equity, meaning that they owe more on their mortgages than their homes are worth.³ The American Housing Survey (AHS) collects longitudinal data on self-reported home values and outstanding principal on mortgages, making it possible to calculate estimates of home equity, underwater status, and loan-to-value ratios at the national level and for individual housing units over time. Using data from the 1997-2009 AHS, this study explores national and regional trends in negative equity, housing and mortgage characteristics associated with negative equity, and demographic characteristics of householders with negative equity. In addition, this study examines the persistence of negative equity over time and the relative contributions of home value and mortgage debt to making homes under water. The percentage of underwater mortgages increased in the AHS from 2007 to 2009, but the 2009 percentage was lower than CoreLogic estimates. Negative equity impedes wealth accumulation and decreases spending power, and it can lead to several different outcomes for homeowners. Some homeowners may have limited mobility while they wait for the market to improve. Other homeowners may choose to strategically default on their mortgage because their home will not appreciate enough to make the unit profitable. Still others may default on their mortgage if their income declines or if they experience significant life events that make it difficult for them to make mortgage payments, such as unemployment, divorce, or a death in the family The AHS does not collect data on mortgage default, but it does capture information on the purchase prices when homes are sold to new owners. Analysts using internal AHS data can use this information to determine if the sale was distressed. Examining individual housing units longitudinally, this study uses the previous owner's outstanding principal and the new owner's purchase price to develop an estimate of the prevalence of distressed sales.