Dolan Media Newswires
The housing market is in a morass largely caused by the plight of Generation X homeowners.
In a new report on homeowner equity, Zillow finds that homeowners aged 39 to 49 got hit hard by the financial crisis and are still struggling with their mortgages. As a consequence, their financial predicament is negatively affecting the entire housing market and impeding its progress.
Generation X homeowners are more likely than any other demographic group to be underwater on their mortgage, according to Zillow's second quarter negative equity report.
The Zillow analysis found that 42. 1 percent of Generation X homeowners with a mortgage are underwater, compared with 15.8 percent of millennial owners and 30.2 percent of baby boomers. The real estate database said this situation is creating a generational gridlock in the housing market because it is very difficult for an underwater homeowner to list their property for sale.
The inability to sell underwater properties causes a ripple effect throughout the housing market, leaving boomers in a situation where they are not able to find a move-up buyer and millennials unable to find a suitable starter home because these are currently occupied by Generation X families.
Slow improvement is expected for underwater homes. Zillow predicts that the negative equity rate for all homeowners with a mortgage will fall to 15.1 percent by the second quarter of next year.
For the vast majority of area underwater homeowners, 54.6 percent, the amount they owe in excess of the home's current worth is 20 percent or less, while 16.7 percent are between 21 and 40 percent underwater.
There is a significant percentage of homeowners, 13.5 percent, who owe more than double what their home is worth, which is above the national average of 12.1 percent. However, Zillow found that the 90-day delinquency rate for mortgaged home in the Charlotte metro was 6.3 percent, below the national average of 6.9 percent.
The markets with the highest overall negative equity rates in the second quarter were Atlanta and Chicago at 28.9 percent and 27.1 percent respectively. Boston and San Jose, Calif., two high-priced markets, had negative equity rates above 50 percent for homeowners aged 35 to 49 with a mortgaged property.
Nationally, the negative equity rate in the second quarter was 17 percent, representing more than 8.7 million homeowners with a mortgage that was more than their home was worth.
Homeowners aged 35 to 49 were the most likely group to be underwater, at 42.6 percent of all owners with a mortgage. By comparison, 15.3 percent of owners aged 20 to 34, and 31.1 percent of homeowners aged 50 to 64, had negative equity.
Zillow found that in general the least expensive homes - the ones most likely to be sought by millennial homebuyers - are more likely to be underwater than middle- and top-priced homes. Nationwide, 28.2 percent of homes within the bottom third of home values were underwater, while the rate was 15.8 percent for the middle tier and 9.2 percent for the top tier.
Additionally, Zillow estimates that more than one-third of homeowners are effectively underwater, which leaves them unable to sell their current home for enough profit to meet the expenses of buying a new place.
"On the surface, the housing recession did not overtly impact millennials' housing wealth to the degree it did Generation X and the baby boomers, as most millennials were likely too young to have purchased a bubble home during the bubble years," said Stan Humphries, Zillow's chief economist. "But as this huge generation begins to consider buying homes, they're entering a market still very much in recovery and far from anyone's definition of normal."
Humphries believes that the market needs to find creative solutions to make housing affordable and available to millennial buyers. Negative equity is putting pressure on inventory, severely constraining the number of homes for sale which causes stiff competition for what is for sale. Humphries cautions that millennials do not have the resources to compete with cash offers or engage in bidding wars.
On the bright side, the number of properties stuck in negative equity nationwide is dropping; the rate fell from 23.8 percent in the second quarter of last year. As home values keep appreciating, underwater homes will ebb, albeit at a slower pace since the price growth on homes is slowing, according to Zillow. The company forecasts that underwater homes will account for 14.9 percent of all homes with a mortgage by the second quarter of 2015.
Published: Mon, Sep 22, 2014
