23 Percent of Homeowners Underwater

November 10 2010 (Chris Moore)
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Zillow announced today that a staggering 23.2 percent of all American homeowners with a mortgage are underwater in the third quarter of 2010, with 11 markets reportedly having as many as 50 percent of the homeowners with mortgages being underwater. A homeowner who is “underwater” owes more on their home than it’s worth.

In Las Vegas, a whopping 80.2 percent of homeowners are underwater on their mortgages, followed by 68.4 percent in Phoenix and 64.2 percent in Orlando.

Nationwide, the negative equity share rose from 22.5 percent in the second quarter, and is at its highest level since Zillow began tracking in 2009.

Meanwhile, CoreLogic is reporting that an additional 5 percent of homeowners with mortgage loans have less than 5 percent equity in their homes and could soon be joining those already underwater if home priced continue to fall.

If that trend were to continue the number of homes underwater could soon jump to 28%. Unfortunately as we have been seeing more and more, homeowners with negative equity are more likely to lose their homes to foreclosure, which could give rise to a higher foreclosure rate.

The ever increasing amount of homeowners underwater is attributed to falling home prices and the large amount of zero down mortgages towards the end of the housing boom.

Zillow’s Chief Economist Dr. Stan Humphries stated, “The high percentage of homeowners in negative equity continues to be troubling, in that it represents a huge number of people who are not only more vulnerable to foreclosure, but who are essentially trapped in their current homes and are prevented from selling and buying a new home.”

“This has profound implications for future demand and will be a millstone around the neck of the housing market.”

During the third quarter, home values fell in 77 percent of the markets covered by the report, and in five of those (Los Angeles, San Diego, San Francisco, San Jose and Ventura), values started to fall again after five consecutive quarterly increases.

Tags: underwater mortgage, foreclosure, home values, homeowners, equity, mortgage loan, zero down mortgages