Fewer underwater mortgages in Florida, but challenges remain

Published Dec. 10, 2018

Not so long ago, nearly half of Florida homes with a mortgage were underwater. That is, the homeowner owed more than the home was worth.

In the years after the Great Recession, the state couldn't break free from the whirlpool of negative equity. Foreclosures skyrocketed, as did personal bankruptcies. Homeowners saw their credit ratings plunge.

It was easy to find someone who owed twice what their home was worth. Some simply walked away, leaving the home for the bank.

How things have changed.

Today, only 6.7 percent of Florida mortgages are underwater, according to a recent analysis from financial services company CoreLogic. While still among the highest rates in the country, the state has closed the gap on the 4.7 percent national average, thanks to big improvements in several cities.

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Las Vegas had the biggest year-over-year change, but seven of the top 10 most-improved metro areas are in Florida — Lakeland, Orlando, Ocala, Tampa Bay, Pensacola, Fort Lauderdale and Jacksonville. Three more made the top 20.

Tampa Bay has slashed its number down to 6.3 percent. That translates to 38,192 underwater homeowners, a fraction of the 340,000 we had at the peak in 2010, CoreLogic said.

The encouraging trend comes as a result of steadily rising home prices and a healthy job market, which helps more people stay on top of their mortgage payments. In addition, most lenders have required larger down payments than before the recession. That means buyers are entering into home ownership with more built-in equity.

Florida wasn't alone. Nearly every state slashed its number of underwater homes compared to a year earlier.

"Unless we are pounded with another epic economic collapse, I think those numbers will continue to improve," said Ralph B. McLaughlin, CoreLogic's deputy chief economist.

McLaughlin didn't think Tampa Bay could get below 2 percent, like some metro areas that have experienced "mind-boggling" run ups in home prices. He thought 4 percent was a more realistic forecast.

Homeowners aren't carrying as much mortgage debt, either. The national average was $131,463 for the third quarter. That's the second-lowest average since 2004. The lowest came earlier this year.

More home equity combined with less individual mortgage debt will help put families and our local economy in a better position to weather the next economic downturn. Fewer homeowners will feel tempted to default on their mortgages and walk away. Increased equity can also provide a financial buffer against hard times, though home equity isn't always easy to tap. If nothing else, a growing net worth makes us feel better about our personal finances.

McLaughlin pointed out that not every economic downturn comes with a corresponding drop in average home prices. Of the past five recessions, only two saw prices fall — in the early 1990s when prices dropped about 1.5 percent and of course the carnage left from the Great Recession, he said.

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It's not all rosy for Florida. While the numbers have fallen a lot, several cities still have too many homeowners with underwater mortgages. About 11 percent in Miami, for instance. Over 10 percent in Ocala and 8 percent in Lakeland.

Homeowners without equity can struggle to sell their homes when faced with financial distress. They are more likely to stop paying and move into foreclosure.

"The trajectory is in the right direction, but that's still a good amount of homeowners without any equity," McLaughlin said.

In other words, the positives outweigh the negatives, but some hazards remain.

Contact Graham Brink at Follow @GrahamBrink.