Economic stress flags in housing market. The number of Tri-Cities underwater homes make big increase

March’s existing home sales report from the Northeast Tennessee Association of Realtors is strong. Residential sales were 11.8% higher than last year, the average single-family resale price is up 4.6%.  At the same time, it must be noted that the all-residential sales growth rate for the first four months of the year is the lowest it has been in four years. And then there’s the housing market indicator that’s not part of most sales and price reports.

The number of seriously underwater home in Carter, Greene, Hawkins, Sullivan, Unicoi, Washington Co. TN and Washington Co VA during the past 22 quarters.

Since the local housing market recovery that took off like a rocket four years ago, the number of properties with mortgages that are equity rich has dramatically declined and as of Q1 this year and the number of mortgaged properties seriously underwater has substantially increased.


That sobering bit of news comes from Attom Data Solutions’ Q1 U.S. Home Equity & Underwater Report which shows that at the end of the first quarter local mortgage holders of more than 20,400 homes owned 25% or more than the estimated value of the property.

The number of equity-rich mortgaged properties in Carter, Greene, Hawkins, Sullivan, Unicoi, Washington Co. TN and Washington Co VA during the past 22 quarters.

Attom’s report shows one in 11 U.S. mortgages were seriously underwater during the first three months of this year while better than one in five mortgaged properties in Greene and Hawkins were in the same economic fix. And the situation isn’t much better in five other local counties included in the analysis.

The other side of the analysis is mortgaged properties that are equity rich. That means the owners owe 50% or less on their mortgage than the estimated property value. This is the number that marketers – especially retailers – love because of it a wealth indicator. The only one that’s has a higher spot on the wealth hit parade is the number of homes with no mortgage. Properties with that status in our area have traditionally been almost half of the households. It too is slowly retreating.

Share of mortgaged properties that have a loan to value ratio of 50% or lower in Q1.

Of course, the decline of equity-rich properties is not necessarily negative. Some owners tapped their equity to buy another home. That likely accounts for most of the decline because it overlays the period when existing home sales increased. Other owners used some equity to remodel or upgrade their homes. That’s been a fairly hot part of our market for a couple of years. There are other ways owners have used their equity, and few hard numbers to show who did it and for what.

Share of mortgaged properties with a loan to value ratio of 125% or above in Q1.

There’s hardly anything positive about a mortgaged property that’s underwater.  They are red flags that point to economic stress rather than the conservative stability that has been the hallmark of the local housing market. Attom’s analysis shows the highest share of that stress in Hawkins County – especially in the Church Hill area (24.7% underwater).  

The zip code with the lease share of underwater homes is 37601 in Washington Co. (9.5%). At the same time, the 37601 zip code had the highest share of equity-rich home (25.3%).

Properties that are seriously underwater are under increasing stress in areas where prices are beginning to soften. The easiest way to tack average prices is on NETAR’s web page’s market analytics page https://netar.us/market-analytics. That data shows the four-month price growth rate for single-family resales this year for counties in Attom’s analysis Hawkins Co. (down 7.5%) and Washington Co. TN (down 2%). City markets with the weakest price growth rate are Greeneville (down 8.5%) and Johnson City (down 1.7%).

 Year-to-date average price data for townhomes is also listed on the page. Elizabethton has the weakest four-month rate (down 39%) followed by Greeneville (down 32.1%) then Kingsport (down 8.3%).

“With homes prices increasing at a slower pace in 2018 than in previous years, the potential for people to climb out from mortgages that are underwater or advanced into the equity-rich territory, tends to be reduced,” said Todd Teda, Attom’s chief products offices said. “If the latest trend continues, it will raise another clear signal of a market slowdown, which will be good for buyers, but not so good for sellers. But if the pattern of the past few years takes hold – with levels of underwater and equity rich mortgages turning around – it will mean the market remains strong for sellers, with fewer needing to get out from under financial distress.”

NETAR’s April Trend Report shows the fourth-month growth rate for single-family resales is 2.5% and 5.3% for townhomes.

Attom’s Report provides counts of residential properties based on several categories of equity — or loan to value (LTV) — at the state, metro, county and zip code level, along with the percentage of total residential properties with a mortgage that each equity category represents. The equity/LTV is calculated based on record-level loan model estimating position and balance of loans secured by a property and a record-level automated valuation model (AVM) derived from publicly recorded mortgage and deed of trust data collected and licensed by Attom nationwide for more than 150 million U.S. properties.