ATTOM Data Solution’s Q1 Home Equity & Underwater Report illustrates how the Tri-Cities housing market is evolving.

During the first quarter of this year, there were 90,827 mortgaged properties in the seven local counties included in ATTOM’s analysis. Of that, 21,227 had an equity-rich status, and 9,292 were seriously underwater. During the past two years, the share of equity-rich property has decreased while the share of seriously underwater properties has increased. Those two years also saw record-level home sales and solid price appreciation.

“Homeowners’ balance sheets generally remained strong in the first quarter of 2020 across the U.S., with about the same levels of equity-rich or seriously underwater mortgages as in the prior quarter. In the latest marker of the ongoing housing market boom, mortgage payers were four times as likely to have homes worth considerably more than what they owed on their loans than considerably less,” said Todd Teta, chief product officer with ATTOM. “But as with other rosy first-quarter reports, this one needs to be taken in the context of the looming impact of the Coronavirus pandemic. With the potential for home values to fall, there is a significant chance that equity levels could drop over the coming months while underwater levels rise.”

HOUSING MARKET BENCHMARKS

Before getting into the weeds, there’s a couple of context baselines to consider.

• The Tri-Cities has a higher share of owner-occupied, mortgage-free properties than the national norm. And there was a mortgage-free shift in the latest Census county that’s noteworthy. The share of mortgage-free properties in the three-county Johnson City Metropolitan Statistical Area (MSA) now exceeds the share in Kingsport-Bristol MSA. During the latest count, 50.4% of the owner-occupied housing in the Johnson City MSA was mortgage-free while 49.3% was mortgage-free in Kingsport-Bristol. Both are strong indicators. They’re strong because it’s a wealth indicator. No mortgage equals more disposable income. Nationwide 38.1% of owner-occupied homes are mortgage-free.
• Local foreclosure rates are currently at pre-recession norms of less than half of a percent, and the regional average residential sales price appreciation has been in the 4.5% to 6.5% range for the past two years.

HOMEOWNER BALANCE SHEETS LOOK GOOD

On the whole, homeowners’ balance sheet was in pretty good shape during the first three months of this year.  But from a trend perspective, the share of equity rich mortgaged properties is declining from almost every county’s previous high. An equity rich property is defined as one with a loan to value ratio of 125% or more, meaning the owner had at least 50% equity.

There was a time when almost every county’s equity rich share was equal to or better than the national share. During Q1, only two counties could make that claim. And Sullivan Co., which used to consistently have the region’s highest equity rich share, barely made the cut.

Of course, the decline in equity status is not necessarily a bad thing. Some owners have tapped that equity for upgrades. Some empty-nesters have scaled-down while other families have traded up.

Sullivan and Johnson counties have a history of the highest share of equity-rich mortgaged properties. The high point for Sullivan was Q1 2014 at 38%. Johnson Co. was at its highest in Q1 2017 at 36%.

HOUSING MARKET RED FLAGS INCREASE

A seriously underwater property is defined as one that has a loan to value ratio of 125% or more. That means the owner owes at least 25% more than the estimated value of the property.

Just because a mortgage is underwater doesn’t mean it automatically moves to foreclosure. In fact, mortgage forbearance provision put in place after Covid-19 gut-punched the economy put the status of many troubled mortgages on hold. The latest national count put the number of mortgages receiving forbearance at 4.1 million during the first week of May. It’s a band-aide for some homeowners and a headache for mortgage services and municipal governments that depend on timely payment of property taxes. But that’s another story.

During Q1, 6.6% of the mortgages in the U.S. were seriously underwater. All of the local counties in ATTOM’s analysis are above that share.

Every county in the region has a double-digit share of seriously underwater mortgages. That situation has been in place since Q2 2018. Before then, some counties (Washington TN, Sullivan and Unicoi typically had a share of troubled mortgages of less than 10%.

Q2 2018 is the quarter when most of the local counties saw their highest share of seriously underwater properties.

Categories: REAL ESTATE