Underwater mortgages hold housing market back

Florida 23.60%

Ohio 21.00%

Michigan 20.20%

Missouri 17.50%

Georgia 17.30%

Indiana 17.00%

Maryland 16.60%

Arizona 15.20%

Source: RealtyTrac

Despite several years of an improving housing market, a large share of Georgia homeowners are still “seriously underwater” – owing 25 percent more on their mortgages than their homes can bring in a sale.

About 17.3 percent of all the homes in the state that have a mortgage are underwater, according to a report released today by RealtyTrac, a California-based real estate research firm.

That compares to the national rate of 13.3 percent, which represents more than 7.4 million homes, said Daren Blomquist, vice president at RealtyTrac.

That share had been falling steadily, but the slide has leveled off, he said. “Slowing home price appreciation in 2015 has resulted in the share of seriously underwater properties plateauing.”

A year ago, 18.7 percent of Georgia mortgages were underwater.

The state has the seventh-highest share of seriously underwater homes, according to the RealtyTrac calculation. Worst on the list is Nevada with 25 percent of mortgages in that category.

Underwater mortgages can be an obstacle to a housing resurgence. That is because few homeowners are willing and able to take a loss on the sale of a home. The result is that many homeowners sit tight when they might prefer to sell.

Those who are “seriously underwater” are the least likely to move.

Homeowners who are underwater can also be hamstrung financially. They are unable to refinance their mortgages to take advantage of low interest rates and they cannot access the value of their homes with homes to pay bills.

The American economy thrives on motion. In most markets and most situations, the more transactions, the better.

But underwater mortgages chills the market in two ways: homeowners are prevented from buying other homes, while their own homes are kept off the market.

The real estate markets in Atlanta and Georgia were among the leaders in the years of the housing bubble. And the burst of the bubble did greater-than-average damage here.

Average prices have now been rising for several years, and the market in many areas has bounced back. But in many places, prices are still far below their peak levels leading to the burst of bubble.

And while the RealtyTrac data indicates a residual problem, it doesn't include all the people who are prevented from moving because they are just moderately underwater or only slightly above it.

Of homes owned for nine years, more than one in five is seriously underwater, RealtyTrac said. And nearly 40 percent of underwater homes were purchased seven to 11 years ago, according to RealtyTrac. That would include properties bought between 2004 and 2008, years that straddle the burst of the bubble.

Nationally, prices peaked in 2006. A year later, the bubble burst in Atlanta and Georgia.