Central Valley has some of nation’s worst home equity

SANTA ANA
November 12, 2008 12:01am

The new city of Mountain House, near Tracy in the Central Valley has more homes “upside down” than anywhere else in the nation, according to the latest First American CoreLogic Negative Equity Report.

The report says 88.7 percent of the homes there are worth less than their mortgages, a condition called being “upside down.”

Statewide, 27.4 percent of all homes with mortgages are in the same financial condition, according to the report.

Lathrop, a short drive from Mpuntain House in San Joaquin County, ranks 11th nationally, with 70.8 percent of its home that have mortgages underwater.

A portion of Rancho Cordova in Sacramento County ranks fourth in the nation with 84.3 percent of mortgaged homes upside down.

Three areas of Riverside County in Southern California also make the Top 20 list.

Nationally, over 7.5 million mortgages or 18 percent of all properties with a mortgage were in a negative equity position as of the end of September. There are an additional 2.1 million mortgages that are approaching negative equity, the report says. These are defined as mortgages within 5 percent of being in a negative equity position. Negative-equity and near-negative equity mortgages combined account for over 23 percent of all properties with a mortgage.

The distribution of negative equity is heavily skewed to a small number of states. Nevada and Michigan have the highest percentages of negative equity with Nevada leading the nation with an estimated 48 percent and Michigan was second with 39 percent. Five other states have negative equity shares in excess of 20 percent: Florida (29 percent), Arizona (29 percent), California (27 percent), Georgia (23 percent), and Ohio (22 percent).

The top 6 states in terms of negative equity account for over 58 percent of all negative equity mortgages, although they only account for 36 percent of all mortgages. The average negative equity share among the top 6 states is 29 percent compared to 18 percent for the US overall.

Excluding the top 6 states reveals that the remaining states’ average negative equity is 12 percent, well below the national average. New York contains the lowest share of mortgages in negative equity at 4 percent, followed closely by Hawaii (6 percent), Pennsylvania (6 percent) and Montana (7 percent), the report says.

The states with high negative equity shares tend to fall in three groups. The first group is composed of states that experienced a rapid housing-price boom and speculative investments and are now experiencing rapid price depreciation. These states include Nevada, Arizona, California and Florida.

The second group is made up Midwestern states, such as Michigan and Ohio, that have experienced manufacturing-driven economic stagnation and have had distressed housing markets for some time.

A third group is emerging: Southern states that did not necessarily experience a large housing boom, but have higher negative equity rates than the majority of states. These include Texas, Georgia, Arkansas, and Tennessee.

Methodology

First American CoreLogic used public record data as the source of the mortgage debt outstanding (MDO), and includes first mortgage liens and junior mortgage liens in order to capture the true level of mortgage debt outstanding for each property. The current value was estimated by using First American CoreLogic’s Automated Valuation Models (AVM). Certain data was filtered to exclude properties outside of AVM accuracy confidence levels.

The amount of equity for each property was determined by subtracting the property’s estimated current value from the mortgage debt outstanding. If the mortgage debt was greater than the estimated value, then the property is in a negative equity position.