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					Housing Units with Negative
    Equity, 1997-2009
        George R. Carter III, Ph.D.
          U.S. Census Bureau
       HUD Data Users Conference
            Washington, DC
             March 8, 2011



                                      1
Disclaimer
This presentation is intended to inform
interested parties of ongoing research and to
encourage discussion of work in progress.

The views expressed on methodological,
technical and operational issues are those of
the author and not necessarily those of the U.S.
Census Bureau.



                                                   2
Introduction
•   Homeownership rates rose in the US until 2004
•   Home prices peaked in the US in 2006
•   Home prices have since fallen at the National level
•   An increasing number of homeowners are
    “underwater”
    – First American CoreLogic estimates 24% of residential
      properties with mortgages were “underwater” at the end of
      the first quarter of 2010




                                                                  3
Research Study
                        Study Goals

1. Cross Sectional Analyses
 –   Trends in negative equity since 1997
2. Longitudinal Analyses
 –   Persistence of underwater status over time
 –   Prevalence of distressed sales since 1999




                                                  4
Data
• American Housing Survey (AHS)
   – National Internal Files
   – Cross-Sectional: 1997-2009
   – Longitudinal: (1997,1999); (1999,2001); (2001,2003);
     (2003,2005); (2005,2007); and (2007,2009)

• Variables of Interest
   – Home Value
   – Mortgage Characteristics
      • Number of mortgages and loans
      • Year mortgage obtained
      • Original amount borrowed
      • Term
      • Current interest rate
   – Purchase Price
   – Housing and Householder Characteristics

                                                            5
What does it mean to be “underwater”?

•   Measurement of home equity
    – Home Equity = Home Value – Outstanding Principal
      • Self-reported in the AHS
    – “Underwater” homes have negative equity
      • Home Value < Outstanding Principal

•   Effect of “underwater” homes on housing market
    –   Reduced wealth accumulation
    –   Reduced household mobility
    –   Mortgage default
    –   Continuing price declines



                                                         6
      What is a distressed sale?
• From Bank’s Perspective
   – Sale that doesn’t cover existing mortgage debt (short sale)
• From Owner’s Perspective
   – Sale that doesn’t cover existing mortgage debt and
     downpayment
• Measurement of distressed sales
   – Purchase price of new owner ≤ outstanding principal of prior
     owner




                                                                    7
Literature-Home Value
  – AHS collects self-reported home values
  – Validity and Reliability
     • Home values in AHS are 5.1 percent higher than actual
       sales prices
     • Estimates are reliable, but consistently overestimate
       home value
       (Kiel and Zabel 1999)
  – Overestimates of home value could depress
    estimates of negative equity
     • May be less of a problem for respondents who
       purchased during soft housing markets
       (Benitez-Silva et al. 2008)


                                                               8
   Literature-Negative Equity,
  Mobility, and Distressed Sales
• Negative Equity and Household Mobility
   – Owners with negative equity one third less mobile than
     owners with positive equity
     (Ferreira, Gyourko, and Tracy 2010)
• Negative Equity and Default
   – Negative equity positively correlated with default
     (Van Order and Zorn 2000)




                                                              9
S&P / Case-Shiller 10 City Index, 1987-2010


 250


 200


 150


 100


  50


    0
        1995
        1996
        1997
        1998
        1999
        2000
        2001
        2002
        2003
        2004
        2005
        2006
        2007
        1987
        1988
        1989
        1990
        1991
        1992
        1993
        1994




        2008
        2009
        2010
Source: Standard & Poor's / Case -Shiller 10 City Index



                                                          10
Trends in Home Value and Outstanding
         Principal, 1997-2009

             250000


             200000
 Dollars




             150000

                                                                                            VALUE
             100000
                                                                                            OTPIN
              50000


                     0



                                              AHSSurveyYear
   ource: . ensus
  S U.SC              Bureau,     eri     n urvey, i am e
                                Am canHousi gS NatonalS pl ,1997                    -2009
     e            e u
  Not : VALUE=Hom Val e.              IN sa n ri p .
                                 OTP =Outt ndi gPnci al             ot easure fe e
                                                                   B hm saresel r portd.



                                                                                                    11
                     Percent Underwater Overall, 1997-2009


                      14
Percent Underwater




                      12
                      10
                      8                                                                          Overall
                      6
                      4
                      2
                      0



                                                  AHS Survey Year
               Source: U.S. Census Bureau, American Housing Survey, National Sample, 1997-2009



                                                                                                           12
Percent Underwater by Region, 1997-2009

                      18
                      16
 Percent Underwater



                      14                                                                         Northeast
                      12
                                                                                                 Midwest
                      10
                      8                                                                          South
                      6
                                                                                                 West
                      4
                      2
                      0



                                                 AHS Survey Year
              Source: U.S. Census Bureau, American Housing Survey, National Sample, 1997 -2009



                                                                                                             13
Percent Underwater by Race of Householder,
               1997-2009

                      16
                      14
 Percent Underwater




                                                                                                   White
                      12
                                                                                                   Only
                      10                                                                           Black
                      8                                                                            Only
                                                                                                   Asian
                      6
                                                                                                   Only
                      4                                                                            Other
                      2
                      0



                                                 AHS Survey Year
                Source: U.S. Census Bureau, American Housing Survey, National Sample, 1997 -2009


                                                                                                           14
Percent Underwater by Hispanic Origin of
        Householder, 1997-2009


                      25
 Percent Underwater




                      20

                                                                                                   Hispanic
                      15

                                                                                                   Non-
                      10
                                                                                                   Hispanic
                       5

                       0



                                                  AHS Survey Year
                 Source: U.S. Census Bureau, American Housing Survey, National Sample, 1997-2009



                                                                                                              15
Percent Underwater by Age of Householder,
              1997-2009

                        20
                        18                                                                    <35
                        16
   Percent Underwater




                        14                                                                    35-44
                        12
                                                                                              45-54
                        10
                         8                                                                    55-64
                         6
                         4                                                                    65+
                         2
                         0



                                               AHS Survey Year

           Source: U.S. Census Bureau, American Housing Survey, National Sample, 1997 -2009


                                                                                                      16
Percent Underwater by Marital Status of
       Householder, 1997-2009

                     14
                     12
Percent Underwater




                     10
                      8                                                                    Married
                      6
                                                                                           Not
                      4                                                                    Married
                      2
                      0




                                                 AHS Survey Year


        Source: U.S. Census Bureau, American Housing Survey, National Sample, 1997 -2009



                                                                                                     17
                     Percent Underwater by Education Level of
                             Householder, 1997-2009

                      16                                                                     Less than
                      14                                                                     High School
Percent Underwater




                      12
                                                                                             High School
                      10
                       8
                       6                                                                     Some College
                       4
                       2                                                                     College
                       0

                                                                                             Advanced
                                                   AHS Survey Year                           Degree

          Source: U.S. Census Bureau, American Housing Survey, National Sample, 1997 -2009




                                                                                                            18
Percent Underwater by Household Income
          Quintile, 1997-2009

                     14

                     12                                                              First Quintile
Percent Underwater




                     10                                                              Second Quintile
                     8                                                               Third Quintile
                     6                                                               Fourth Quintile
                     4                                                               Fifth Quintile
                     2

                     0




                                           AHS Survey Year
  Source: U.S. Census Bureau, American Housing Survey, National Sample, 1997 -2009



                                                                                                       19
Percent Underwater by Interest Rate of First
          Mortgage, 1997-2009

                     20
                     18                                                                         <5%
Percent Underwater




                     16
                     14                                                                         5-6%
                     12
                                                                                                6-7%
                     10
                     8
                                                                                                7-8%
                     6
                     4                                                                          8+%
                     2
                     0



                                                            AHS Survey Year
              Source: U.S. Census Bureau, American Housing Survey, National Sample, 1997-2009



                                                                                                       20
Percent Underwater by Mortgage Type of First
           Mortgage, 1997-2009

                     25

                     20
Percent Underwater




                     15
                                                                                                   ARM
                     10
                                                                                                   Fixed
                     5

                     0



                                                         AHS Survey Year
                Source: U.S. Census Bureau, American Housing Survey, National Sample, 1997 -2009


                                                                                                           21
Percent Underwater by First Time Homeowner
            Status, 1997-2009


                         16

                         14
    Percent Underwater




                                                                                                 First Time
                         12                                                                      Homeowner

                         10                                                                      Owned
                                                                                                 Home
                         8                                                                       Before

                         6

                         4

                         2

                         0



                                                     AHS Survey Year
              Source: U.S. Census Bureau, American Housing Survey, National Sample, 1997 -2009



                                                                                                              22
Percent Underwater by Building Type, 1997-
                  2009

                      35
                      30                                                                            One-unit
                                                                                                    detached
                      25
 Percent Underwater




                      20                                                                            One-unit
                                                                                                    attached
                      15
                                                                                                    2+ apartments
                      10
                      5
                                                                                                    Manufactured/
                      0                                                                             mobile home



                                                        AHS Survey Year
                 Source: U.S. Census Bureau, American Housing Survey, National Sample, 1997 -2009



                                                                                                                    23
        Negative Equity Persistence
Years                                               Percent of Units Underwater at
                                                    First Survey Year That Are
                                                    Underwater Two Years Later
2007,2009                                           36.91
2005,2007                                           21.90
2003,2005                                           26.80
2001,2003                                           23.44
1999,2001                                           20.21
1997,1999                                           28.21
Source: U.S. Census Bureau, American Housing Survey, National Sample, 1997-2009




                                                                                     24
   Prevalence of Distressed Sales
Years                                               Percent of Sales Distressed Two
                                                    Year Later
2007,2009                                           21.10
2005,2007                                           11.73
2003,2005                                           11.21
2001,2003                                           13.77
1999,2001                                           13.12
1997,1999                                           12.83
Source: U.S. Census Bureau, American Housing Survey, National Sample, 1997-2009




                                                                                      25
Summary
• Across-the-board increases in underwater units in 2009, except
  for manufactured/mobile homes
• Higher persistence of underwater status in 2009 than 2007
• Higher percentages of distressed sales in 2009 than 2007

• Estimates of underwater units lower than CoreLogic’s estimates
   – AHS
       • Self-reported home value and mortgage data
       • Owner-occupied homes
   – First American CoreLogic-Value and Outstanding Principal
       • Automated Valuation Models (AVM) and public record
         data on mortgage debt outstanding
       • Single family properties
       • Owned and rented
       • Occupied and vacant

                                                                   26
Future Research
• Model Distressed Sales on Negative Equity and
  Housing Burdens in Prior Survey Year
• Longitudinal Weighting
• Longitudinal Editing




                                                  27
Contact Information
George Carter:
 george.r.carter.LLL@census.gov




                                  28

				
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