Introduction and summary
The Great Recession, which began with the collapse of U.S. home prices in 2007,
resulted in an enormous number of households with negative equity. Housing
prices dropped nationally by 35 percent during the collapse.
As home values fell, the mortgage debt obligations of millions of American homeowners remained
fixed, leading to an unprecedented number of homes being worth less money than
what was owed on them.
Seven years later, about 7.5 million American homeowners are still underwater.
Even though home values have continued to rise and the national percentage of
homeowners with negative equity is down from 30 percent in the second quarter
of 2011 to 15 percent in the first quarter of 2015, there is still much work to be
done in order for the market to fully recover.
Negative equity is considered one of the principal challenges to an economic
recovery at both the local and national levels.
The persistence of negative equity imposes significant costs not only on homeowners but also on local
communities and the economy at large. When homeowners owe more on their homes than
what they are worth, they are unable to draw on home equity to invest in their
children’s education or to start small businesses. Homeowners also may curtail
their consumption by purchasing fewer goods and services from local businesses,
thus curbing employment and income levels. Finally, because of underwater borrowers’
high propensity to default, large concentrations of underwater properties
threaten to induce future waves of foreclosures and can contribute to a continuing
cycle of decline and disinvestment.
The mortgage crisis has affected the entire nation and economy. It is important,
however, to recognize that the negative equity crisis has tended to be concentrated
in certain areas of the country, and its evolution has followed different patterns
based on geography. This report examines the course of negative equity at the
county level nationwide and provides an account of the characteristics of counties
that have experienced a decrease in the incidence of negative equity compared
with those where negative equity rates are stagnating or getting worse.