(Update 1: Noted that the ZIP code 95931 is located in an area known as Mountain House, correcting a reference to Tracy, Calif., which is near -- but not part of -- the unincorporated planned community.) Does the economy's recovery hinge on housing? Maybe, maybe not. But we do know this: housing has some serious correcting to do yet ahead of it. You don't need to look further than October 2008 data from First American CoreLogic, which found that 7.6 million U.S. borrowers were underwater on their mortgages at that point, with an additional 2.1 million mortgages about to head beneath the water's surface. Let the critics say that such a mess of negative equity doesn't drive defaults. They'll be proven wrong. Anyone in the servicing trenches knows better, because we've seen that borrower equity can cure plenty of ills; we also know that the lack of it leaves a borrower in a tenuous position to manage an economic downturn that, by most accounts, seems likely to hit with a ferocious bite at least through the third quarter of this year. Perhaps the most staid of all equations in the mortgage servicing business is this: price declines equal borrower defaults. If you want to know which markets are going to bleed most heavily through this year, then, you need look no further than those markets that are already mostly underwater relative to home equity. With the help of First American CoreLogic, we took at look by ZIP code at which local markets with more than 1,000 mortgages rank among the nation's worst -- not by price decline, or sales volume, but by the number of mortgages that are now underwater. And the localized data reveals what is still a very grim outlook for California, Nevada and Florida, above all, as well as some areas in Arizona. The first three states are home to the top 10 worst local housing markets -- where a market is defined by a particular ZIP code. A look at a dubious list of suspects The nation's most troubled housing market by this measure would be the ZIP code 95931, in Mountain House, CA, an unincorporated planned community along the western boundary of San Joaquin County; it's an exurb of the San Jose/San Franscisco market, part of the Stockton metro area. A full 88.7 percent of outstanding mortgage debt in this area is estimated to be underwater, with 91.5 percent of all mortgages ranking as "near negative equity" by First American CoreLogic. Lenders have lost a net $226 million in equity in this market alone, relative to mortgage debt outstanding. The median income for a household in the city was $62,794 two years ago, according to census data, and the median income for a family was $67,464; sound like a market where median home prices could rise massively relative to incomes?
Tracy, Calif.
Sin City has been hit hard, but the number of negative-equity mortgages still in the area suggest it has further to fall. (photo source: Christopher Chan)
Despite the severity of the housing price correction already felt there, ZIPs in Las Vegas slotted in at numbers 2 and 3 on the negative-equity list, with their share of active mortgages in negative equity sitting at 87.1 percent and 86.3 percent, respectively. Between the ZIPS of 89178 and 89166, more than $2.7 billion in mortgage debt remains outstanding; relative to estimated property values in the two ZIPs, lenders have seen more than $350 million in equity evaporate here. The average loan to value ratio in both ZIPs is north of 115 percent LTV -- and that's using data from October 2008. Fifth on the list is a ZIP in North Las Vegas, as well: 89081. With 7,739 mortgages in the ZIP, a full 82 percent of mortgages are estimated to be underwater. That ZIP alone is responsible for an estimated $241.7 million in lost equity. Coming in at number four? Rancho Cordova, Calif., home to the 95742 ZIP code and part of Sacramento County in Northern California -- 84.3 percent of the 2,099 mortgages in the ZIP have reached a negative equity position, CoreLogic's data showed, while an additional 83 mortgages are considered "near" negative equity as well. The city is near to Tracy, Calif., and is part of the Sacramento–Arden-Arcade–Roseville Metropolitan Statistical Area; yet another NorCal property disaster waiting to unfold. Not that Northern California and Las Vegas have a corner on the market for lost home equity. Markets in Riverside County, located in Southern California's Inland Empire region, ranked numbers five and 10 on the neg-am ZIP rankings nationally. A full 76.7 percent of its mortgages are currently underwater in the 92582 ZIP code in Riverside, and 71.0 percent have gone negative in the 92532 ZIP in the same county, the data showed. The full list of the top 20 negative equity markets is below: 95391 (San Joaquin County, CA): 88.7 percent neg-am share 89166 (Clark County, NV): 87.1 percent share 89178 (Clark County, NV): 86.3 percent share 95742 (Sacramento County, CA): 84.3 percent share 89081 (Clark County, NV): 82.0 percent share 92582 (Riverside County, CA): 76.7 percent share 33976 (Lee County, FL): 76.6 percent share 33974 (Lee County, FL): 73.6 percent share 89139 (Clark County, NV): 71.1 percent share 92532 (Riverside County, CA): 71.0 percent share 95330 (San Joaquin County, CA): 70.8 percent share 33971 (Lee County, FL): 70.4 percent share 85339 (Maricopa County, AZ): 69.8 percent share 92596 (Riverside County, CA): 69.7 percent share 85353 (Maricopa County, AZ): 69.4 percent share 92571 (Riverside County, CA): 68.8 percent share 34987 (Saint Lucie County, FL): 68.7 percent share 33909 (Lee County, FL): 68.5 percent share 34288 (Sarasota County, FL): 68.3 percent share 89084 (Clark County, NV): 68.2 percent share Source: First American CoreLogic, data as of Oct. 2008 Write to Kelly Curran and Paul Jackson at kelly.curran@housingwire.com and paul.jackson@housingwire.com. Disclosure: The authors held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.