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5 states drowning in underwater mortgages

MIAMI - DECEMBER 7: An aerial view shows the city of Miami, Florida on December 7, 2006. (Photo by Marc Serota/Getty Images)
MIAMI - DECEMBER 7: An aerial view shows the city of Miami, Florida on December 7, 2006. (Photo by Marc Serota/Getty Images)Marc Serota / Getty Images

As home prices continue to slide, more and more homeowners find themselves owing more on their homes than those houses are worth. The slowing level of foreclosure activity last year only exacerbated the problem, leaving more homes in trouble on the market.

Last week, Corelogic reported that the number of underwater mortgages as a percentage of all mortgaged homes rose in the fourth quarter of 2011 to its highest level since 2009, the first year the property analytics provider began reporting the data.

According to Corelogic’s Negative Equity report, the mortgages on more than 11.1 million homes, or 22.8 percent of the nation’s 48.7 million mortgaged homes, are underwater. Based on Corelogic’s report, 24/7 Wall St. identified the 10 states with the highest percentage of underwater mortgages.

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Some of the states with a high percentage of underwater mortgages had economic problems long before the recent recession. States such as Michigan and Rhode Island have experienced long-term industrial declines for some time. In these areas, drops in home values were only accelerated by the recession.

For most of the states on the list, however, a decline in home values is the main reason homeowners suddenly found themselves owing more on the their houses than they are worth. These states, which include Nevada and Arizona, experienced some of the biggest housing booms in the country. Many homeowners took out mortgages when home values were at their highest. The plunge in housing values was just as big, though. As a result, nearly half of all mortgages in these states are underwater.

Being underwater does not ensure financial disaster for homeowners -- so long as they are otherwise financially secure. In states like Virginia, for example, high median income and low unemployment has contributed to a relatively low rate of homes that are 90 days or more late on their payments, or are in foreclosure. This is despite the fact that 23 percent of the state’s mortgages are underwater, the 10th-highest rate in the country.

Most of the states on the list, however, are not as fortunate as Virginia. Seven of the 10 worst-off states have unemployment rates above the national average. Six of them have median household incomes below the national average. According to Fiserv’s home price projections, nine of the 10 states on this list will continue to see home values fall substantially through the third quarter of this year.

24/7 Wall St. relied on Corelogic’s Q4 2011 Negative Equity report to determine the states with the highest percentage of mortgages with negative equity. Because of sample size, seven states were excluded from their results. These states, which include Wyoming and Vermont, account for fewer than 5 percent of the total U.S. population.

In our own analysis, we examined a variety of metrics. We included December unemployment rates provided by the Bureau of Labor Statistics and median income, median home value and poverty rate from the U.S. Census Bureau. Declines in home value from peak to fourth quarter of 2011 is from FHFA. Fourth-quarter 2011 delinquency (90-plus days) and foreclosure rates are from Corelogic. Forecast changes in home value by state are from Fiserv.

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1. Nevada

  •  Percent homes underwater: 61.1 percent
  •  Total property value: $96.57 billion
  •  Mortgage debt outstanding: $109.94 billion
  •  Median home value drop from peak: 60 percent (the biggest decline)
  •  Homes in foreclosure or 90-plus days delinquent: 13.4 percent (second-largest percentage)

Like Arizona, Nevada’s property value has plummeted since the middle of the decade, losing more than $150,000 on average (more than 50 percent) in just five years. Nevada is also the only state in the country in which total homeowner debt is actually higher than the total property value of owned homes -- nearly two in three mortgaged homes are underwater. As of the end of 2011, 13.4 percent of mortgages were either already in the foreclosure process or more than 90 days delinquent on their payments.

2. Arizona

  •  Percent homes underwater: 48.3 percent
  •  Total property value: $243.02 billion
  •  Mortgage debt outstanding: $226.22 billion
  •  Median home value drop from peak: 47.9 percent (second-biggest decline)
  •  Homes in foreclosure or 90-plus days delinquent: 7.1 percent (11th-largest percentage)

Through the first half of the decade, states such as Nevada, Utah and Arizona experienced record growth in population, business and, as a result, new construction. Conditions reversed in 2008, and the states that once led in property value growth and employment, like Arizona, fell through the floor. In the third quarter of 2006, Arizona had median home value of $254,655. To date, that value has dropped by more than $100,000. Some 48.3 percent of all mortgaged homes are now underwater.

3. Florida

  •  Percent homes underwater: 44.2 percent
  •  Total property value: $809.95 billion
  •  Mortgage debt outstanding: $706.00 billion
  •  Median home value drop from peak: 44.8 percent (fourth-biggest decline)
  •  Homes in foreclosure or 90-plus days delinquent: 17.4 percent (the largest percentage)

No state has a larger gross vacancy rate than Florida, standing at more than 20 percent. When the housing market flourished, the state geared up for the impending retirement of millions of baby boomers by constructing tens of thousands of new homes. When the market collapsed, real estate investments in the state were hit hard. Florida’s home value has plummeted by more than 40 percent -- the second largest drop in the country -- and nearly one in two mortgaged homes are underwater.

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4. Michigan

  •  Percent homes underwater: 34.7 percent
  •  Total property value: $198.05 billion
  •  Mortgage debt outstanding: $165.45 billion
  •  Median home value drop from peak: 30.1 percent (fifth-biggest decline)
  •  Homes in foreclosure or 90-plus days delinquent: 6.5 percent (19th-largest percentage)

Michigan’s economy and housing market was already in bad shape leading up to the recession, and things have only gotten worse. The state experienced a net loss in population between 2000 and 2010, the only state that lost residents during the period. Unemployment has improved somewhat in the past few years, but it is still the 10th-highest rate in the U.S. Michigan home value began to decline before the recession hit, after peaking in 2005. Since that time, home prices have dropped by 33 percent.

5. Georgia

  •  Percent homes underwater: 33.0 percent
  •  Total property value: $306.59 billion
  •  Mortgage debt outstanding: $252.81 billion
  •  Median home value drop from peak: 26 percent (10th-biggest decline)
  •  Homes in foreclosure or 90-plus days delinquent: 8.0 percent (tied for fifth-largest percentage)

One-third of mortgage owners in Georgia have more mortgage debt than their homes are worth. Since the home values peaked in the state in 2007, prices have declined 26 percent. The state has the ninth-most mortgaged homes in the country and even more homes underwater. At 540,000 it has the fourth-most underwater mortgages of any state. Georgia’s unemployment rate is the ninth-highest in the country.

Click here to read the rest of 24/7 Wall St.'s "The 10 states sunk by underwater mortgages."