As measured by the negative equity report by Zillow for the second quarter, Detroit and Cleveland homeowners are still in deep trouble, half a decade after the heart of the real estate bubble.
According to the Q2 Zillow Negative Equity Report, the overall U.S. negative equity rate as of the end of Q2 2016 – the share of homeowners that were underwater, owing more to their lenders than their home was worth – was 12.1 percent. That’s down from 12.7 percent in the first quarter and 14.4 percent at the same time a year ago. When examining the negative equity rate in urban and suburban areas, we found that 13.7 percent of homeowners in urban areas and 11.2 percent of homeowners in suburban communities were underwater at the end of Q2.
At its worst, in 2011, the number was over 30%.
Detroit and Cleveland have the worst of it. Detroit, the city proper, has tens of thousands of abandoned homes, many of which the city will bulldoze. The city has a population of less than 700,000, down by half from 1960, when the car industry made it the fourth largest city in the United States. The problems in Cleveland are similar, though not as bad.
Zillow experts report:
Home values in the larger Detroit and Cleveland metro areas as a whole remain below their pre-recession peaks – off by 11.6 percent in the Cleveland metro, and by 19 percent in the Detroit metro, as of the end of Q2. But those larger metros include a diverse set of urban and suburban communities, each of which is performing differently. Focusing in on just the largest urban center in each metro – the two titular cities of Cleveland and Detroit – reveals a different picture. Home values in the largely urban city of Cleveland itself are down by almost 40 percent from their early 2006 peaks. In the city of Detroit, home values are off more than 52 percent from late-2005 peaks. Both inner cities are struggling with blight and population flight.
There is an argument to be made that, at least in Detroit, the market will never recover much more than to its current level.