At the height of the 2008 housing crisis, 30% of homeowners were underwater on their mortgage. That number sank to 9.1%, the lowest since the crash, as reported by Zillow in May of this year in light of its 2017 Q4 Negative Equity Report. Since then, underwater mortgages have trended slightly upward, but are very much under control.
According to Zillow, this is significant because, “Negative equity acts as a drag on the overall housing market, extending beyond homeowners who are underwater. Low inventory is one of the main factors in driving home values higher, as demand from millennials – the largest group of homebuyers – exceeds the available supply. Underwater homeowners are contributing to this shortage, holding on to their homes instead of selling for a loss.”
Many Homeowners Not Underwater Today
Today, the rate of homeowners underwater (a term that is defined as someone owning more than their home is worth) is slightly over 9% nationwide. However, in some areas of the country the percent of homeowners underwater is nearly double.
“For much of the country the Great Recession is an increasingly distant memory – the American economy is booming once again and markets are now shifting their gaze to future downturn risks,” said Zillow senior economist Aaron Terrazas. “But scattered in neighborhoods across the country, the legacy of the mid-2000s housing bubble and bust lingers among the millions of Americans still underwater on their mortgages, trapped in their homes with no easy options to regain equity other than waiting. Their struggles mean there are fewer homes on the market for homebuyers today. In corners of the country where home values have been stagnant in recent years, recent homebuyers can easily fall underwater, particularly those who buy with small down payments.”
For example, in Virginia Beach, 16% of homeowners are underwater as of Zillow’s report. This is true in Chicago as well, where more than 15% are underwater. Furthermore, areas where more than 10% of homeowners are underwater include Philadelphia, Washington D.C., Baltimore, Detroit, and Cleveland.
Home Values Climbing
For most people, their homes saw about a quarter of the value lost during the recession. However, home values continue to climb and people who were able to work through the housing crisis are starting to see the fruits of their labor.
- Federal Tax Cut Projected to Inject Nearly $40 Billion into the Housing Market
- Home Values Quickly Rise at Fastest Pace in 12 Years
Homeowners are Refinancing to Take Cash Out of the Homes
As a result of recovering from the 2008 housing crisis and rising home values, many homeowners are refinancing their homes to take out cash (i.e., cash-out refinancing). Besides getting cash out of their homes, homeowners may also refinance to get a lower monthly payment with a lower interest rate.
As a matter of fact, Tampa was recently ranked among the top cities for cash-out refinance mortgages due to its strengthening housing market.
Related: Current Mortgage Rates
What is Cash-Out Refinancing?
Cash-out refinancing is accomplished by refinancing your home mortgage and taking some of the equity out in the form of cash.
For example, if you owe $60,000 on a home that is worth $200,000, and refinance the property with a fixed-rate mortgage for 80% of the value ($160,000), you may be able to take $100,000 in cash out of your home.
Related: Benefits of Cash-Out Refinancing
Marimark Mortgage is based in Tampa, Florida and serves the mortgage needs of homebuyers, homeowners, and investors in Florida, Virginia, and Pennsylvania.
We specialize in conventional home mortgages, FHA, VA and USDA mortgage options, refinance loans, and reverse mortgages. We’ve worked extensively with cash-out refinancing, and help clients with HARP refinancing to lower their monthly mortgage payments.