Surprising number of homeowners faring relatively well with home equity

Negative equity and underwater homeowners are frequently in the headlines, but what about positive equity in Americans’ homes?

Is there much of it left after the wealth-killing recession and real estate bust? Where is it? Who’s got equity? You might be surprised.

A new study, conducted by mortgage and real estate data firm CoreLogic for this column, found that there are substantial reserves of positive equity across the country. CoreLogic maintains the largest database on home loans — 42 million active accounts, more than 80 percent of all existing mortgages — with information supplied regularly by lenders and servicers.

First let me give some basics on equity. The Federal Reserve estimates that at the end of June, Americans held $6.2 trillion in equity in their homes. This was down sharply from its high mark of $13.2 trillion in 2005. Roughly one of every three homes is mortgage-free, according to federal and industry estimates.

Among owners who have mortgages, according to CoreLogic, 48.5 percent of them have at least 25 percent equity stakes in their properties. Roughly a quarter of owners with mortgages — 24.6 percent — have more than 50 percent equity.

At the other end of the spectrum, 22.5 percent of owners are in negative equity positions, burdened with houses worth less than their mortgage balances.

Where do owners have the highest equity holdings? Two states with very different economic profiles top the list — New York, where 48.8 percent of owners have greater than 50 percent equity positions, and Hawaii (43.7 percent). Both states also have exceptionally low incidences of negative equity. Connecticut, Massachusetts, Pennsylvania, the District of Columbia and New Jersey all have equity positions far above the national average. In the District, for example, 35.1 percent of all owners have 50 percent equity in their homes or more. In Connecticut, it’s 37 percent, Massachusetts 36 percent and New Jersey 34.6 percent.

Sam Khater, senior economist for CoreLogic, said that states with high equity levels tend to be relatively affluent — or at least have sizable pockets of affluence — plus relatively low levels of mobility and in-migration. They also did not experience rampant construction booms on suburban land tracts during the years 2003-07, or heavy use of zany financing. They saw appreciation in real estate values, but not double digits a month as occurred in some parts of the country.

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One state — California — exhibits not only the stable, relatively affluent, low-construction characteristics of high-equity areas but also has wide swaths that saw the reverse.

“It’s kind of a barbell state,” said Khater, with above-average numbers of owners holding 50 percent equity or more — typically in or near the coastal cities — combined with large numbers of owners in deep negative equity, clustered in the interior counties and the Central Valley. While 26 percent of California owners have 50 percent or greater equity stakes — surprisingly above the national average — nearly one out of five owes 20 percent to 50 percent or more on their mortgages than their home value.

The states where people tend to have the least favorable equity positions aren’t hard to guess. Just 7.5 percent of Nevada owners have equity of 50 percent or greater. At the other extreme, 30 percent of them have mortgage debt that is 50 percent or more than their property values. Almost 58 percent of all Nevada owners are in negative equity positions, according to the CoreLogic data.

Arizona has the second-worst situation on negative equity, with 49 percent of owners underwater, followed by Florida with 45 percent. However, unlike Nevada, both Florida and Arizona have higher numbers of owners who still have solid equity holdings. In Florida, more than one of every six owners has 50 percent or higher equity. In Arizona one of every eight does.

A handful of states that never saw the unrestrained price run-ups experienced in Nevada or Florida, and that have large numbers of owners with hefty equity positions, nonetheless have substantial numbers of underwater owners.

Virginia, with a sizable population of affluent owners in the northern suburbs bordering Washington, D.C., has a negative equity rate of 22.8 percent. Maryland, which has a rate of equity-rich ownership above the national average, also has an above-average rate of negative equity — 23.5 percent of owners are underwater.

What to make of all these numbers? Equity holdings declined virtually everywhere during the real estate and mortgage busts, but $6 trillion-plus of it is still out there. Most owners are still faring relatively well in terms of home equity — they’ve got 25 percent stakes or nearly that much.

You just don’t hear about it.

Ken Harney is a syndicated real estate columnist.

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