The number of homeowners with underwater mortgages continues to fall, with another 850,000 mortgages returning to positive equity in the first quarter of the year.
Some 9.7 million homes, representing nearly one in five mortgages, were in negative equity as of the first quarter of 2013, according to a new analysis by the real estate data firm CoreLogic, down from 10.5 million in the fourth quarter of 2012.
Another 11.2 million homeowners were in a low-equity situation, not underwater on their mortgage but with less than 20 percent equity in their homes, a situation that can make refinancing difficult or more expensive.
Rising home prices a key factor
Strong gains in home prices during 2012 and 2013 played a major role in helping homeowners regain equity, according to CoreLogic officials.
"The negative equity burden continues to recede across the country thanks largely to rising home prices," said Anand Nallathambi, president and CEO of CoreLogic. "We are still farbelow peak home price levels, but tight supplies in many areas coupled with continued demand for single family homes should help us close the gap."
Over the past three years, the number of homes with underwater mortgages has fallen by 2.4 million, from 12.1 million in the first quarter of 2010, when underwater loans made up 26 percent of all mortgages.
Further gains may be hard to come by, however. CoreLogic estimates that a 5 percent rise in home prices would bring only another 1.6 million homes back into positive equity
No second lien for most underwater borrowers
Contrary to a popular perception, the majority of underwater homeowners held only first-lien mortgages, without any home equity loans or other second liens. Among underwater homeowners, 6 million held only a primary mortgage, while 3.7 million had both primary and second mortgages.
Negative-equity homeowners with only a primary mortgage were underwater by an average of $48,000; those who also had a second lien were underwater by an average of $79,000.
Five states account for nearly one-third of all properties in negative equity. Nevada had the highest rate of negative equity, with 45.4 percent of all mortgaged homes underwater, followed by Florida (38.1percent), Michigan (32.0 percent), Arizona (31.3 percent) and Georgia (30.5 percent).