More than 40% of Georgia homes underwater

How we got the story

Arielle Kass, who covers housing for the AJC, noticed on a Zillow map of negative home equity that many Atlanta-area ZIP codes were among the worst 1 percent, 5 percent and 10 percent in the U.S. She got the full list of the worst 1 percent from Zillow, and discovered that Georgia had more ZIP codes on that list than any other state. She then did a full analysis of the Georgia data, spoke to housing experts, and interviewed residents of Riverdale, which had a higher percentage of underwater homes than any other area in the state.

In an arc that stretches from Cartersville to McDonough to Winder, dozens of metro Atlanta neighborhoods are drowning. There’s not another metro area in the United States with as many concentrated pockets of mortgage holders who are underwater on their loans. No place else comes close.

The nationwide data, complied by Zillow at the end of last year, identified the worst 1 percent of ZIP codes in terms of the percentage of mortgage holders who owe more than their homes are worth. Georgia has nearly a quarter of those ZIP codes, most of them arrayed in a crescent around Atlanta’s southern flank. Michigan, the next hardest-hit state, has only half as many ZIP codes in the worst 1 percent.

The biggest losers, of course, are individual homeowners. But the consequences continue to ripple outward — even as home values are rebounding in other parts of the region.

“It’s been a huge drag on Atlanta’s economy,” said Mark Vitner, a senior economist at Wells Fargo. “It’s discouraging investment from those areas.”

When a home is underwater, it makes the homeowner feel poorer. It means that people are less mobile, less likely to move for new jobs or better schools. When they are unable to move, underwater homeowners stall the rest of the market. That limits the options for people who want to buy their first house, or those who are shopping for a bigger house.

People who are underwater are less inclined to make improvements to their home, because there is less likelihood that they will get back the money they put in. They have less access to home equity lines of credit, which can impair their ability to start a new business, or send a child to college.

Retailers and other companies are less likely to open businesses in areas where homeowners are underwater. They do not want to invest in places where homeowners do not feel flush. Unemployment tends to be worse where people are underwater. Crime, too.

The hardest-hit parts of metro Atlanta encompass 52 ZIP codes, or 23 percent of the worst 1 percent. They are largely south of the city, but the crescent extends northward at each end, from Cartersville in the northwest to Winder in the northeast. On the list are ZIP codes in Marietta and Dunwoody, Covington, Lawrenceville and Norcross, as well as downtown Atlanta and Atlantic Station.

On average in those ZIP codes, 72 percent of the homes with mortgages are underwater. If you include areas where the situation is only slightly better — where at least half of mortgage holders are underwater — the list expands to 101 Georgia ZIP codes, almost one in six.

Metro Atlanta has a dozen counties where at least half of mortgages are underwater: Clayton, DeKalb, Gwinnett, Newton, Douglas, Paulding, Henry, Rockdale, Carroll, Bartow, Jackson and Barrow. In Fulton, 43 percent are underwater; in Cobb, it’s 41 percent.

The worst area is Antonio White’s neighborhood, in the Clayton County city of Riverdale. There, 85 percent of homeowners with mortgages are underwater.

White, who lives on Wealthy Court, twice refinanced his house when the market was booming. He was talked into it, he said, by employees of now-defunct Countrywide Financial, who came to his door.

The $98,000 he still owes is far more than the $69,000 he paid for the small, split-level house when he bought it in 1994. It’s also far more than the $39,241 the Clayton County tax assessor’s office says the home is now worth.

After suffering what he will only describe as a “change in income,” he filed for bankruptcy in 2011 to forestall foreclosure. The case was dismissed last year. His requests for a loan modification have been denied. White said he is $30,000 behind on his payments. If not for the refinancing, he said, the house would be paid off.

“I’m going to eventually lose my house,” he said. “Any first Tuesday of any month, it could be sold on the courthouse steps. … It wasn’t even worth it.”

Statewide, 42.1 percent of Georgia homeowners with mortgages are underwater. Nationally, it’s 27.5 percent.

Svenja Gudell, a senior economist at Zillow, said she expects Georgia’s numbers to remain worse than the national average for some time. She noted that markets like Phoenix, which also was hammered in the recession, are seeing home prices recover more quickly than Atlanta.

In some parts of the metro area, houses are selling quickly, and for more than their asking price. Homes are being built for the first time in years. The number of foreclosure notices has been falling. But the improvements are not spread evenly across the city.

“The negative-equity issue is one of the big risks still facing the housing market, even though we have all these signs of recovery,” said Daren Blomquist, vice president of RealtyTrac. “It’s a crack in the foundation.”

That’s because the behavior of homeowners who are underwater is unpredictable. They can still choose to walk away from their houses, deciding the hit to their credit is worth not paying the mortgage on a home that may take years to recover its value.

Those who failed to make their mortgage payments, by necessity or choice, may also be foreclosed on.

Consequently, it’s likely to be years before metro Atlanta’s housing market fully recovers, experts say. For the worst-hit places — in Clayton County, 82 percent of mortgage holders are underwater — significant improvement could take a decade. Such areas, where home prices were lower to start with, saw values plummet even further than in wealthier areas, leaving homeowners deeper underwater.

“The whole southern half of the metro area is going to see depressed home prices,” said David Blitzer, managing director of S&P Dow Jones Indices, which publishes the widely watched Case-Shiller Home Price Index. “It’s enough to impact other neighborhoods.

While prices during the run-up did not spike as much in Atlanta as in some other cities, they still fell precipitously from the peak.

“Even when you had 20 percent down on the property, the home values fell so much further than that,” Gudell said. “If you bought at an over-inflated price, you were doomed before you even started.”

Buyers who put little down, and who were highly leveraged, slipped underwater even faster. Those like White, who refinanced their houses in the boom times, borrowing against pre-recession appraised values, took a bath too.

Mark Cole, the executive vice president and chief operating officer of CredAbility, said many metro Atlantans bought more house than they should have, and with marginal financing. In normal times, they would simply sell their houses and trade down. Now, it’s nearly impossible.

Instead, they may walk away from their homes, pay rent instead of a mortgage, and decide not to buy again.

“It has a long-term corrosive effect,” Cole said. “You may have a whole generation of neighborhoods that say, ‘We’ve just given up on the American Dream.’”

Bryan Wyche rents his Atlanta home, but his fiancee owns a townhouse in Riverdale that she’s been trying to short sell. Wyche said she owes roughly $80,000 of the $110,000 purchase price; now it’s worth $28,000. The townhouse has been broken into three times, and squatters have taken over several nearby houses abandoned by their owners.

“What would be your motivation to stay?” he said. “She’s stuck in a neighborhood that was very nice when she moved into it, but it’s not so nice anymore.”

Whether or not Wyche’s daughter or his fiancee’s teenage son ever want to buy a home remains to be seen.

Many first-time home buyers were brought into the market too soon, Vitner said, particularly through sub-prime loans. Those first-time buyers were particularly hard hit by the lost value, Cole said.

Another worrisome trend: Many of the hardest-hit areas have high black populations, and African Americans tend to have more of their wealth tied up in their homes, rather than, say, stocks and bonds.

Consequently, tens of thousands of black Atlantans got knocked flat just when they were just starting to accumulate wealth that could be passed from one generation to the next.

“It’s a violation of the American Dream,” said Dennis Kimbro, a professor in the school of business at Clark Atlanta University. “It means there is no American Dream for that family. For this particular ethnic group, it doesn’t work.”

In Riverdale, even in neighborhoods with two-story brick- and stone-fronted homes and basketball hoops on the driveways, the mailboxes are askew and the lawns are filled with weeds. On Apache Lane, where the homes are more modest, plastic covers broken windows and the paint is faded and peeling on many homes.

Lee Collier has lived on that street since 1988, when his house was built. Collier mows a neighbor’s lawn to keep it maintained. He knows which houses are empty, and which are being rented. Across the street, he said, some teenagers were caught breaking the drywall in a home by running into the walls with their bodies.

“It makes it hard to take care of property that’s not yours,” he said. “You watch it, guard it. But people still float in and float out.”

Collier lost his part-time job as an auto mechanic three years ago, after being laid off by AAA. His wife is disabled. He said he’s a month behind on almost every utility bill. The stress has caused him to lose more than 80 pounds.

It’s been harder and harder to make payments on the house he bought for $69,572 a quarter century ago. With the addition of a shed, it’s worth $68,651 now. When values were high, Collier refinanced the house for $90,000 to pay off some debts, he said, and he thinks he still owes nearly $70,000.

He received a foreclosure notice last year. That’s been resolved, he said, but he still feels like he’s let his family down.

“I talk to a psychologist to help me out,” he said. “Before, I held a gun to my head at one point, a year ago. The only thing that stopped me was thinking about my grandson, and what he’d think.”

Collier hears about the improving housing market, but he doesn’t see it in his neighborhood.

“They act like it’s doing real good, but I don’t see it doing that good myself,” he said. “I don’t think we’ll see it for the next five to seven years.”