Call them the invisible victims of the housing collapse: The millions of homeowners who’ve spent nearly a decade dutifully making mortgage payments on homes worth less than the balance of their loans. Known as “being under water,” many in this crowd were never in danger of losing their home. But that doesn’t mean they didn’t suffer.
Tiffany Doyle, 44, was one of them. She bought her two-bedroom townhouse outside Seattle for a very reasonable $289,000, well within her means. But her timing was terrible. She pulled the trigger in 2007; very near the market’s peak. When the recession hit, her townhouse’s value plunged all the way to an estimated $220,000.
You might think as long as Doyle could keep making payments on the mortgage everything would be fine. Wrong. After the bubble burst, her company was acquired by a New York-based firm. To get ahead — or at least to feel secure in her position — she’d have to relocate to New York. But that wasn’t possible.
“I could not even consider moving,” Doyle said. If she did, she would have lost much of her life savings paying off the balance of her loan after her townhouse sold. Meanwhile, she also knew declining the move might put her future prospects with the firm at risk. “I remember feeling trapped. I thought I was making a move towards a better financial stability and then the market dropped out from under me.”
Doyle’s story was repeated across the country during the depths of the recession. Homeowners who are under water often can’t sell their homes, meaning they can’t move for job opportunities — or at least they end up long-distance renting or living as split families. They also can’t obtain home equity loans or refinance, since their homes have no equity, but relief may finally have arrived.
Real estate data firm RealtyTrac says the number of “seriously” under water homes fell dramatically in 2015 as housing prices around the country continue to recover from their 2008-2009 lows. At the end of 2015, there were 6.4 million U.S. homes at least 25% under water. That’s roughly 11.5% of all homeowners with a mortgage. While that sounds like a lot, it’s down from 7.1 million at the end of 2014 — 12.7% of all homeowners with a mortgage — and down from 18.8% at the end of 2013.
Doyle fits this profile neatly. Her townhouse is now worth an estimated $267,000 — still well below what she paid, but since she’s made several years of payments, she’s reasonably close to break-even. In other words, her mortgage is no longer a financial anchor around her neck.
“It was only a few months ago when I saw the value of my house start going up, and I did immediately feel more free and a huge sense of relief,” she said.
Even in the hardest-hit areas, relief is coming, though more slowly. In Florida, for example, 19.8% of mortgage holders are still seriously under water, but that’s compared to 24.7% last year. In Arizona, the number fell from 16.1% in 2014 to 14.3% in 2015. In Georgia, it fell from 19.2% to 14.1%, according to RealtyTrac.
But of course, there are still millions of homeowners struggling with the same situation Doyle recently escaped. For them, relief might still be many years away.
“Over the past three-and-a-half years, the number of seriously underwater properties has been cut in half, but we continue to deal with a long tail of seriously underwater properties, and it will likely be another five years at least before most of those remaining underwater properties move into positive equity territory,” said Daren Blomquist, vice president at RealtyTrac.