For Some Americans, the Housing Crisis Isn't Over

About 7.5 million people still owe more on their mortgages than their homes are worth. And in some counties, numbers are climbing.

Mike Groll / AP

The millions of foreclosures stemming from the Great Recession made for dramatic headlines. Now, the housing markets in many of the hardest-hit areas have recovered, and cities such as San Francisco, Los Angeles, and New York are even seeing record real-estate prices. Yet while the national housing market may be well on the way to recovery, the markets in some areas of the country are actually getting worse, according to a new report out from the Center for American Progress.

The report indicates that there are still more than seven million homeowners who are underwater in America—that is, they owe more on their homes than the homes are worth. In some 1,000 counties, the number of underwater homes is stagnant or increasing, threatening already struggling regions with the potential of more foreclosures, more empty and abandoned homes, and more people who opt to rent instead of buy, which drives up the price of apartments.

“It’s easy to say housing crisis is over but, for many parts of the country, it’s certainly not. The recession isn’t either,” said Sarah Edelman, one of the authors of the report.

When homes are underwater, their owners can’t draw on their home equity to invest in education or other big-ticket items. They also can’t rely on that equity as an option in the event of an emergency. It also makes selling their home an unappealing choice. Owners often cut back on spending and remain stuck in a state of limbo. As they wait for to see whether the banks foreclose, they often don’t know if they’ll be able to stay in their homes, or even rent an apartment in the same school district. A large number of homeowners with negative equity isn’t just bad for individual families, it can have profound implications for the economy, especially when it’s in as uncertain a state as it is now. A flood of foreclosures on the market can drive down values of other homes nearby, decreasing equity across a community.

The percentage of underwater homeowners is currently at 15 percent. That’s about half of what it was in 2011, but still much higher than the rates of the late 1990s, when only 4 to 5 percent of homeowners were underwater nationally.

While California, Florida, and Nevada were the centers of the housing and foreclosure crisis during the recession, now problem counties are located in the South, upstate New York, and rural areas of Wisconsin, according to the report. These homes are often concentrated in areas where economic activity is stagnant and where home values have not rebounded (This interactive site shows negative equity rates in specific counties).

In the worst counties, the rate of underwater homeowners grew to 21 percent in the first quarter of 2015, from 13 percent in 2011. These areas have experienced slow population growth and declines in median household incomes. The counties have seen an increasing number of renters, which is also causing rental affordability problems. They include Baldwin County, Georgia, Bell County, Texas, and Onslow County, North Carolina.

“Some of these counties were seeing signs of economic decline even before the financial collapse,” Michela Zonta, another of the study’s authors, said.

Negative Equity by County, First Quarter 2015

“The Uneven Housing Recovery,” Center for American Progress

Other counties are stagnant,  their rates of negative equity are constant but high, ranging from 15 percent to 36 percent. They include Hartford County, Connecticut, Newport News, Virginia, and Decatur County, Indiana.

But even counties that have shown substantial improvement include zip codes where many homeowners are still struggling, the report found. In Contra Costa County, in the San Francisco Bay Area, nearly 40 percent of homes were underwater in 2011, and on average, just 10 percent are underwater now. And throughout the county, many zip codes have almost no underwater homes. But in a few zip codes in the far northwest and northeast parts of the county, more than 20 percent of homes remain underwater, the report found, showing how uneven the progress can be despite close proximity.

So what’s to be done? Some of the tools used to stabilize neighborhoods during the recession could work again, Zonta and Edelman suggest. The Federal Housing Finance Agency and the Federal Housing Administration could fund further neighborhood stabilization and foreclosure-prevention efforts, for example. The government could extend the Home Affordable Modification Program and the Home Affordable Refinance Program past their current expiration dates of late 2016.

For homes whose owners can’t catch up on payments, banks should be required to maintain the vacant properties so that they don’t have a negative effect on the surrounding neighborhood by depleting property values or creating an unsafe or unhealthy environment. Banks should also be encouraged to consider short sales.

But policy doesn’t have to just focus on housing, the authors said. Since the areas with large numbers of underwater homeowners correlate so closely to areas with struggling economies, government policy could focus on creating more, and better, jobs in slow areas. Housing and economic policy might be created with the whole country in mind, but when specific locations are still lagging behind, it might be time to tweak policy to help long-suffering areas finally share in the recovery.