flooded-home Photo: .waldec/Flickr

The total number of underwater homes across the US continues to sink while the Rust Belt flounders, according to the latest Zillow Negative Equity Report.

These homes aren’t literally underwater — instead the term indicates homes that are worth less than the mortgages their owners have taken out on them.

In the first quarter of 2016, 12.7 percent of homeowners with mortgages found themselves in this choppy position, says Zillow, the online real estate database and research firm.

That’s a slightly smaller share than in the fourth quarter of 2015, when 13.1 percent were in negative equity, another term for the predicament.

On a regional level, Svenja Gudell, Zillow’s chief economist, notes how the tides have changed over several years.

“When the housing bubble burst, the west coast had more than its share of underwater homeowners,” she says in a statement.

“But the strong local economy and job markets have significantly helped these housing markets recover, and several are now more expensive than they were during the housing bubble,” Gudell adds.

Among the 35 biggest markets Zillow covered, San Jose had the smallest share of underwater homes with 2.8 percent of homeowners with mortgages finding themselves in negative equity, unchanged from the previous quarter.

That’s a far cry from where the market stood in 2012, when the national share of underwater homes reached its peak of 31.4 percent in the wake of the subprime mortgage crisis and housing crash.

At the time, 22.7 per cent of homeowners in San Jose were carrying mortgages worth more than their homes.

Not all markets have been riding this wave, the economist makes clear: “Other parts of the country didn’t get those same benefits, and until market fundamentals improve, homeowners and buyers in these areas will be facing disproportionately higher levels of negative equity as they navigate the housing market.”

In particular, markets in the Rust Belt, made up of large swaths of the northeastern and midwestern US where a thriving manufacturing industry was once based, have been slow to recover since the first quarter of 2012, says Gudell.

With 20.3 percent of all homeowners with mortgages in negative equity, Chicago had the greatest share of underwater homes.

Last quarter, when that share was 20.5 percent, it was just behind of Las Vegas’ 20.9 percent share, another market still reeling from the housing bust.

“Now, the dubious honor of America’s most negative equity-ridden large market has been passed to Chicago,” notes Gudell.

“And given the rapidly diverging economic conditions in both those markets and other large markets nearby, the shift looks unlikely to reverse for many years.”

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