5 Cities Where People Owe More Than Their Homes Are Worth

Housing

Published: February 7, 2019 12:11 pm

Last Updated: January 11, 2020 11:29 am

Underwater mortgages were a staple of the Great Recession and the national home real estate value collapse from 2006 to 2009. In some cities in Florida and metropolitan areas like Las Vegas, the average home price dropped more than 50%. This left hundreds of thousands of people with homes worth less than their mortgages. This, in turn, caused a wave of defaults. While the sharp recovery in the housing market has driven down the problem of underwater mortgages (the term for houses worth less than their mortgages), some cities have not dodged the problem. That problem is particularly acute in five cities in the South and old industrial cities.

ATTOM Data Solutions, a large housing information company, crunched numbers on home values versus mortgage values for the fourth quarter of 2018. The research says 5 million homes are still “seriously underwater,” which means the combined approximate balance of loans on the property is at least 25% above the property’s estimated market value. This is about 8.8% of all homes in America.

The problem should continue to get better. Todd Teta, ATTOM’s chief product officer, said “With homeowners staying put longer, homeownership equity will most likely continue to strengthen. Those that are seriously underwater may find themselves coming up for air as they continue to pay off excessive legacy mortgages or sell.” Among the reasons home prices have consistently risen in the United States are low unemployment and low inventory. Some research does show the improvement has slowed slightly in the past several months.

The areas where the most mortgages are severely underwater are concentrated in a few areas in the United States. Among 98 metropolitan statistical areas examined, the five highest levels are as follows:

Baton Rouge, Louisiana: 20.7%
Youngstown, Ohio: 19.0%
New Orleans, Louisiana: 19.0%
Toledo, Ohio: 18.0%
Scranton, Pennsylvania: 17.7%

Other than the two in Louisiana, the others are in Rust Belt cities that used to have manufacturing-heavy economies.

The ATTOM information across states shows a slightly different pattern. The states with the highest share of mortgages seriously underwater were as follows:

Louisiana: 20.8%)
Mississippi: 16.9%
Arkansas: 15.9%
Illinois: 15.6%
Iowa: 15.2%

Arkansas and Iowa fall outside the areas that traditionally suffer from real estate value problems. ZIP codes with the greatest trouble also included areas where manufacturing industries have been troubled. The top five ZIP codes for seriously underwater mortgages were:

08611 in Trenton, New Jersey: 70.3%
63137 in Saint Louis, Missouri: 64.8%
60426 in Harvey, Illinois: 62.3%
38106 in Memphis, Tennessee: 60.5%
61104 in Rockford, Illinois: 59.6%

ATTOM acknowledged the regional problem as part of the research. Teta said, “This report helps to showcase a story of the West coast markets having the highest share of equity rich homeowners versus the South and Midwest markets, who continue to have stubbornly high rates of seriously underwater homeowners.” In other words, the problem is getting better, depending on where you live.