Are ‘underwater’ homes on racial lines?

Study says problem is worse in areas mostly African-American.

The line between healthy and unhealthy housing markets is largely a racial one, according to a study by the Federal Reserve Bank of Atlanta.

At least when it comes to negative equity, also described as being “underwater,” the problem is much worse in areas that are largely African-American, according to Elora Raymond, a graduate researcher with the Fed’s Center for Real Estate Analytics.

That’s not all African-American neighborhoods, but the ones that are more economically stressed, she said in a paper done for the Fed.

“The places with persistent high negative equity are in predominantly black zip codes with longer commute times, higher unemployment rates, and high rental vacancy rates,” Raymond writes.

Other issues are factors, such as the quality of the housing, the amount of joblessness and the epidemic of foreclosures in the area, but when by themselves they do not explain the location of underwater mortgages. More than the other factors, there is “strong association between racial composition and persistent negative equity,” she said.

The Fed relied on data collected by Zillow, a Seattlebased real estate data firm.

As reported by The Atlanta Journal-Constitution, Zillow reported that 17.6 percent of the homeowners with mortgages in metro Atlanta homeowners are underwater. More than twice as many — nearly 37 percent of homeowners — are effectively underwater, that is, “they don’t have enough equity to comfortably cover the costs of selling their home and buying a new one,” according to Zillow.

In the Atlanta Fed’s southeastern district, the worst 1 percent – that is, the mortgages that were the furthest underwater — are 72.7 percent black, 20.5 percent white, 7.7 percent Hispanic and 3.8 percent non-white Hispanic.

In metro Atlanta, 56 percent

of all the ZIP codes have a high level of homes underwater. Nearly one in five ZIP codes were in the worst 1 percent of negative equity, according to the Fed.

A map included in the Fed’s report shows that the areas with a high share of underwater homes are nearly all at the center and the south of metro Atlanta. A “red zone” representing areas with a high share starts in the middle of Cobb County and moves mostly south and east.

Negative equity has been “persistent” because a tidal wave of high-risk loans helped fuel a housing bubble that left behind large pools of foreclosures and debt as it burst, according to Raymond.

In many areas, a downward spiral followed as foreclosures dragged down surrounding values, which made more foreclosures likely.

It may be, too, that government programs meant to soften the blow “were not structured in the most effective ways, or simply did not reach the places where they were needed the most,” said Raymond.

Foreclosures have ebbed gradually, the overall market slowly recovered and prices began to rise, but in places with the worst debt and foreclosure, home prices were slow to recover — or didn’t recover at all.

Raymond’s research does not aim to explain why there is such a racial disparity in negative equity. But she does suggest that the current pattern will serve to widen the racial gap in real estate wealth — the difference between the average housing assets held by whites and non-whites.