The bust of the houses seems to be a distant memory in most places, but there are still communities in the rust belt and the south with a high number of underwater houses. That is, homes for which owners owe more than market value.
The owners of this Houses are effectively trapped. If they sell, they have to write a check to their mortgage lender, get the lender to accept less than 100%, or file for bankruptcy. Neither is a good option.
A decade ago, cities everywhere had thousands of underwater houses. Rising house prices have fixed the problem in most places. Cities with some of the biggest price hikes like San Francisco or Seattle now have the opposite: large numbers of homeowners are full of equity.
Unless you are Bottom fishingA market with a significant number of underwater houses should make you pause and think. Upkeep sometimes suffers, which can affect resale prospects for nearby homes. And an area that is still declining roughly 15 years after the market peak is unlikely to show the fastest appreciation in the years to come. Stock-rich areas often reflect years of steady price increases and limited supply that could drive values higher if the housing shortage is not addressed.
In Baton Rouge, La., 14.2% of homes were seriously underwater (loans of at least 125% of home value) in the fourth quarter of 2020, according to ATTOM Data Solutions, a real estate analyst firm.
In Syracuse, NY, the underwater rate was 14%; in Youngstown, Ohio, 12.5%; in Toledo, Ohio, 11.3%; and in President Joseph Biden’s hometown of Scranton, Pennsylvania, 11.2%.
In addition to the cities just mentioned, Cleveland is among the top 10 underwater cities. Akron, Ohio; New Orleans; Dayton, Ohio; and Virginia Beach-Norfolk, Va.
Neighborhoods in very rough shape
Some districts and smaller towns are in even worse shape than these towns. In 81 postcodes, at least a quarter of the houses are under water, as ATTOM Data found. The worst rate (79%) was in Paradise, California, which was devastated by a 2018 forest fire that killed 85 people and destroyed most homes in the city. It is possible that long delays in taking out insurance will reduce this number significantly.
The next worst rates were in the rust belt. At Cleveland zip code 44110 (52.9% submerged), the median home value is only $ 64,000 and the median household income is less than $ 22,000. In Milwaukee’s ZIP Code 53207 (49.2%), the median home price is $ 67,900 and the median household income is just over $ 22,000.
Underwater houses are in decline in most cities
Overall, the number of underwater houses is steadily decreasing. According to ATTOM Data, 3.2 million homes – one of 18 mortgaged homes – were classified as seriously underwater in the fourth quarter. That was 5.4% of all US homes with a mortgage, up from 6.4% last year.
Underwater statistics highlight the uneven economic recovery over the past decade. Cities that are Mecca for young, well-educated workers like Portland, Maine or Boise, Idaho have seen their house prices rise over the past decade. Former manufacturing strongholds such as Youngstown and Scranton continue to suffer. Cities’ house prices almost always reflect their local economies.
Last year’s recession caused by coronavirus only exacerbated this trend. Cities with rapidly rising property prices tend to have more workers who were able to work from home during the pandemic and were therefore less affected. According to ATTOM Data, six of the ten states with the greatest increase in high-equity homeowners were in the west. In California, 46.1% of homeowners have homes that are worth at least twice the amount they owe. In San Francisco’s zip code 94116, the rate is 79.3%.
Even in cities far from the real estate boom, there are growing numbers of high-equity homeowners. In Syracuse, for example, 29.3% of homeowners have homes that are worth twice what they owe. In Scranton this rate is 24.2%; in New Orleans 21.9%.
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