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Las Vegas tops list of cities with underwater homeowners

Reuters

What happens in the Vegas housing market seems to be staying in the Vegas housing market. That means a nation-leading percentage of homeowners that are underwater.

Mortgage debt continues to be a major issue in the United States, nearly six years after home prices peaked, according to a report released last week by online real estate site Zillow. Americans continue to owe more on their homes than they are worth. Nearly one in three mortgages are underwater, amounting to more than 15 million homes and a total negative equity of $1.19 trillion.

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In some of America’s largest metropolitan regions, however, the housing crash dealt a far worse blow. In these areas -- most of which are in California, Florida and the southwest -- home values were cut in half, unemployment skyrocketed, and 50 percent to 70 percent of borrowers now find themselves with a home worth less than the value of their mortgage. 24/7 Wall St. reviewed the 100 largest housing markets and identified the 10 with the highest percentage of homes with underwater mortgages.

Svenja Gudell, senior economist at Zillow, explained in an interview with 24/7 Wall St. that the markets with the highest rates of underwater borrowers are in trouble now because of the rampant growth seen in these cities prior to the recession. Once home prices peaked, which was primarily in late 2005 through 2006, all but one of these 10 housing markets lost at least 50 percent of their median home value.

Making matters worse for families with high negative equity in these markets is the increased unemployment. “If you have a whole lot of unemployment in an area, you’re more likely to see home values continue to decline in the area as well,” says Gudell. While in 2007 many of these markets had average or below-average unemployment rates, the recession took a heavy toll on their economies. By 2011, eight of the 10 markets had unemployment rates above 10 percent, and three -- all in California -- had unemployment rates of above 16 percent, nearly double the national average.

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24/7 Wall St. used Zillow’s first-quarter 2012 negative equity report to identify the 10 housing markets -- out of the 100 largest metropolitan statistical areas in the country -- with the highest percentage of underwater mortgages. Zillow also provided us with the decline in home values in these markets from prerecession peak values, the total negative equity value in these markets and the percentage of homes underwater that have been delinquent on payments for 90 days or more.

These are the cities with the most homes underwater.

1. Las Vegas, Nevada

  •  Percentage of  homes that are underwater: 71 percent
  •  Number of mortgages underwater: 236,817
  •  Median home value: $111,600
  •  Decline from prerecession peak: 63.2 percent
  •  Unemployment rate: 13.9 percent

At 71 percent, no city has a greater percentage of homes with underwater mortgages than Las Vegas. The area with the second-worst percentage of underwater mortgages, Reno, has less than 62 percent mortgages with negative equity. The corrosive effects the housing crisis had on Las Vegas are evident in the more than 200,000 home mortgages that are underwater, 14.3 percent of which are at least 90 days delinquent on payments. Additionally, home values have dropped 63.2 percent from their prerecession peak, the third-greatest decline among the nation’s 100 largest metropolitan areas. Largely because of the collapse of the area’s housing market, unemployment in the Las Vegas area has soared. In 2007, the unemployment rate was 4.7 percent, only marginally different from the nation’s 4.6 percent rate. Yet by 2011, the unemployment rate had increased to 13.9 percent, considerably higher than the nationwide 8.9 percent unemployment rate.

2. Reno, Nevada

  •  Percentage of  homes that are underwater: 61.7 percent
  •  Number of mortgages underwater: 46,115
  •  Median home value: $150,600
  •  Decline from prerecession peak: 58.3 percent
  •  Unemployment rate: 13.1 percent

There are fewer than 75,000 households in Reno, Nevada. Yet 46,115 home mortgages in the city are underwater, accounting for 61.7 percent of mortgaged homes. From January 2006 through the first quarter of 2012, home prices were more than halved, and negative home equity reached $4.39 billion. Additionally, the unemployment rate almost tripled in rising from 4.5 percent in 2007 to 13.1 percent by 2011. In 2007, Reno had the 54th-worst unemployment rate among the 100 largest metros. By 2007, Reno had the eighth-worst unemployment rate.

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3. Bakersfield, California

  •  Percentage of  homes that are underwater: 60.5 percent
  •  Number of mortgages underwater: 70,947
  •  Median home value: $116,700
  •  Decline from prerecession peak: 57.0 percent
  •  Unemployment rate: 14.9 percent (5th highest)

From its peak in May 2006, the median home value in Bakersfield has plummeted from more than $200,000 to just $116,700, or a 57 percent loss of value. From 2007 through 2011, the unemployment rate increased from 8.2 percent to 14.9 percent -- the fifth-highest rate in the country. To date, more than 70,000 homes in the region have underwater mortgages, with total negative equity of just over $6 billion.

4. Modesto, California

  •  Percentage of  homes that are underwater: 60.3 percent
  •  Number of mortgages underwater: 46,598
  •  Median home value: $130,600
  •  Decline from prerecession peak: 64.5 percent
  •  Unemployment rate: 16.8 percent (tied for highest)

Since peaking in December 2005, home prices in Modesto have plunged 64.5 percent. This is the largest collapse in prices of any large metro area examined. As a result, 46,598 of 77,222 home mortgages in Modesto are underwater. Meanwhile, the unemployment rate rose to 16.8 percent in 2011. This number was 7.9 percentage points above the national average of 8.9 percent and almost double Modesto’s 2007 unemployment rate of 8.7 percent.

5. Stockton, California

  •  Percentage of  homes that are underwater: 60.3 percent
  •  Number of mortgages underwater: 60,349
  •  Median home value: $146,500
  •  Decline from prerecession peak: 64.3 percent
  •  Unemployment rate: 16.8 percent (tied for highest)

With an unemployment rate of 16.8 percent, Stockton is tied for the highest rate among the 100 largest metropolitan areas. Few cities have been hit harder by the sinking of the housing market than Stockton, where 60.3 percent of home mortgages are underwater. Though there are only 100,014 houses with mortgages in Stockton, 60,348 of these are underwater and have a total negative home equity of slightly more than $6.9 billion. Meaning, on average, homeowners in Stockton owe at least $100,000 more than their homes are worth.

Read the rest of The Cities with the Most Homes Underwater at the 24/7 Wall St. web site.