By Tim Davis, May 8, 2009
Three zip codes in Lynn are among the top 20 in the state in terms of having homes in which the amount of the mortgage is higher than the value of the home, according to a Seattle-based real estate data service.
In a survey of 127 U.S. metro areas, Zillow.com estimates that 18 percent of homes purchased between 2004 and 2008 had negative equity, commonly known as underwater loans. Zillow.com also reported that the number of underwater loans ranged from 13 percent in the Pittsfield metro to 28 percent in the Boston-Cambridge-Quincy metro to 40 percent in the Worcester metro. At the zip code level, Lynn's 01901 topped the Massachusetts list at 66 percent, according to Zillow. See the accompanying chart for more detail.
The Zillow report is similar to a March 3 Banker & Tradesman report that said that nearly 18 percent of all Massachusetts homeowner mortgages are underwater, with the highest concentrations in Dorchester (66 percent), Lawrence (65 percent) and Brockton (64 percent). While estimating home values is not a perfect science, gauging the number of underwater loans can be helpful in predicting future foreclosure rates and where high concentrations of foreclosures may occur.
In a 2008 paper titled Negative Equity and Foreclosure: Theory and Evidence, the Federal Re-serve Bank of Boston fore-casted that 7 to 8 percent of the 94,600 Massachusetts home-owners with negative equity in the fourth quarter of 2007 were likely to be foreclosed.
This analysis was based on an examination of the number of Massachusetts homeowners with negative equity that were foreclosed in the real estate crash of the early 1990s. Based on recent economic data, the Federal Reserve authors have since predicted that the percent of foreclosures for negative-equity homes could reach 10 percent.