Zillow has good and bad news for mortgages in Boston
Negative equity in Boston’s housing market continues to decline.
The good news: Negative equity, the situation in which a homeowner owes more money on a mortgage than their home is worth, has been consistently falling in Boston, according to new research from Zillow.
Zillow found the U.S. rate of negative equity for homeowners fell in the second quarter of 2015 to 14.4 percent, the first time since the real estate bubble burst that the rate was under 15 percent.
In the Greater Boston housing market, 7.9 percent of homes (64,267 in total) are in negative equity, also referred to as being “underwater’’ or “upside down,’’ at the end of the second quarter of 2015, roughly half the national rate. That’s down from 8.5 percent in the previous quarter.
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According to figures Zillow provided to Boston.com, Boston’s negative equity hit its peak in 2012 at 22 percent (Zillow started tracking negative equity in 2011). Zillow’s chief economist Svenja Gudell says Boston’s housing market is doing very well in terms of bringing down negative equity.
“Boston is definitely among the luckier metros,’’ said Gudell. She points out that Boston’s negative equity rate is on par with cities like Dallas, Los Angeles, and San Diego.
“Boston benefits from having a housing recession that’s not as deep as other places,’’ Gudell said. “The metro is growing nicely and showing good home value growth.’’
The bad news (for some): The real estate firm found that condos, which are increasingly in demand in Boston, are more likely than single-family homes to be underwater both in the local market and at the national level.
Zillow reports nearly 20 percent of all condos nationwide are upside down.
In Boston, the rate is lower, but condos are twice as likely as single-family homes to be underwater. Zillow found 12.9 percent of Boston-area condos are upside down compared to 6.5 percent of single-family homes.
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Tight supply, improving values
Zillow assigns homes in each metro area to a top, middle, or bottom tier based on their estimated value. Gudell attributes the decline of Boston’s negative equity overall to improving home values at the bottom tier.
She points out most first-time homebuyers look to break into the market with cheaper homes in the bottom tier. The lack of inventory in that segment is increasing competition among buyers.
“The bottom tier is experience a bit of a crunch at the moment,’’ said Gudell. “There’s really limited supply for homebuyers, which is driving up values.’’
It also means homeowners who were prevented from selling their homes due to negative equity could get a break and see their negative equity decline.
“As more first-time buyers enter the market seeking these less expensive homes, home value growth at the bottom end could continue to outpace growth overall,’’ said Gudell. “Which will be good news for millions of underwater homeowners in these homes.’’
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