Fewer Underwater, Due to Foreclosures

By:: Kirk Haverkamp | December 13, 2010

The number of U.S. homeowners in negative equity is declining, but that’s mostly due to some of them losing their homes to foreclosure and not to increasing property values or paid-down mortgage debt, according to real estate data firm CoreLogic.

An estimated 10.8 million residential properties were “underwater” in the third quarter of 2010, with the owners owing more on their mortgage than the property is worth, the company reported today. That represents 22.5 percent of all homes with mortgages, down from 23 percent, or 11.0 million, in the second quarter of the year.

"Negative equity is a primary factor holding back the housing market and broader economy,” said Mark Fleming, chief economist with CoreLogic. “The good news is that negative equity is slowly declining, but the bad news is that price declines are accelerating, which may put a stop to or reverse the recent improvement in negative equity."

Several leading surveys have recently reported falling U.S. home prices in the latter part of the year, including Standard & Poor’s/Case Shiller and Zip Realty. Government-backed megalender Freddie Mac reported last week that it expects national home prices to bottom out in the first half of 2011 before beginning to recover.

The total number of homeowners in negative equity has declined by half a million this year, CoreLogic reported. Meanwhile, U.S. home ownership has been declining, according to the Census Bureau, falling to 66.9 percent of the population in the third quarter of the year, down from 69.2 percent in the fourth quarter of 2009.

Approximately 10 percent of all U.S. homeowners were found to be in negative equity by 25 percent of their mortgage balance or more. Among the hardest hit states, that figure rose to nearly half of all homeowners in Nevada, following by approximately 30 percent of Arizona and Florida homeowners, and close to 20 percent of those in California.

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