As of December, there were 9.3 million U.S. residential properties still deeply underwater on their mortgages – representing 19% of all properties with a mortgage – according to RealtyTrac's U.S. Home Equity & Underwater Report.
That's down from 10.7 million residential properties deeply underwater in September, representing 23% of all properties with a mortgage; down from 10.9 million properties deeply underwater in January 2013, representing 26% of all properties with a mortgage; and down from 12.8 million residential properties deeply underwater in May 2012 – the peak for negative equity following the financial crisis – representing 29% of all properties with a mortgage.
RealtyTrac defines ‘deeply underwater’ as homes where the loan amount is at least 25% higher than the property's estimated market value.
About 48% of all properties in foreclosure were deeply underwater in December, according to the report. That compares to about 56% in September.
Meanwhile, about 31% of all residential properties in foreclosure had some positive equity, up from 24% in September.
The number of properties with at least 50% equity grew during the fourth quarter. As of September, about 7.4 million properties, or about 16% of all residential properties with a mortgage, had positive equity of at least 50%.
"During the housing downturn, we saw a downward spiral of falling home prices resulting in rising negative equity, which in turn put millions of homeowners at higher risk for foreclosure when they encountered a trigger event such as job loss," says Daren Blomquist, vice president at RealtyTrac. "Now we are seeing the reverse trend: rising home prices resulting in falling negative equity, which in turn is giving millions of homeowners a lifeline to avoid foreclosure when they encounter a trigger event.’
‘On the other end of the spectrum, the percentage of equity-rich homeowners is nearing a tipping point that should result in a larger inventory of homes listed for sale and give the overall economy a nice shot in the arm in 2014,’ Blomquist adds.
Still, there are ‘millions of homeowners who are in such a deep equity hole that it will take years for them to regain their equity," Blomquist says.
‘The longer these homeowners remain in a negative equity position without relief in the form of a principal loan balance reduction, the more likely that foreclosure will become the path of least resistance for them,’ he adds.
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