Nearly One-Fourth of Mortgages Now Underwater

By:: Kara Johnson | May 10, 2010

Nearly one-quarter of all U.S. mortgages are now underwater, according to figures released today by real estate data company Zillow.

The share of underwater borrowers, those who owe more on their mortgage than their home is worth, rose to 23.3 percent in the first quarter of 2010, up from 21.4 percent in the final quarter of 2009. The figure is for mortgages on single-family homes.

Foreclosures also increased in March, with just over one home in 1,000 with an outstanding mortgage going into foreclosure during the month. The reported rate was 0.11 percent, up from 0.10 percent previously. Sales of distressed (i.e., foreclosed) properties made up 22.2 percent of all home sales, a bit more than one in five sales, up 3.5 percent from the last quarter of 2009.

Home values continued to decline as well, falling to a median value of $183,700, down 1 percent from the previous quarter and down 3.8 percent from one year ago. On a year-over-year basis, prices fell in 106 of the 135 local housing markets tracked by Zillow.

At the same time, housing values appear to have stabilized in several large housing markets in California that have seen some of the nation’s steepest declines in home values over the past few years. Home values in Los Angeles, San Diego, San Francisco, Santa Barbara and Ventura has all risen significantly over the past 10 months, according to the report, after bottoming out in spring 2009.

"It's a very positive sign that several large markets have hit what appears to be a tentative bottom in home values," said Zillow Chief Economist Dr. Stan Humphries. "While this is no guarantee that home values there will not fall again, it is more likely than not that they will remain above their lowest point last year.”

Even so, Humphries said there are still causes for concern. He said home values continue to decline and the inventory of homes for sale is still rising, while the boost from the recently expired homebuyer tax credit is likely only temporary and may have served only to accelerate sales that would have occurred later in the year.

As a result, he predicted that home values would not bottom out nationally until the third quarter of this year, and that continued foreclosures and high rates of negative equity would mean prevent a rebound of home values for an extended time, perhaps as long as five years.

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