Seriously Underwater Mortgage Rate Sinks to Lowest Level in Two Years

RealtyTrac reported that 8.1 million U.S. homeowners, representing 15 percent of all mortgages in the country, were seriously underwater on their mortgage in Q3, the lowest percentage of underwater mortgages nationwide since RealtyTrac began tracking the data in Q1 2012. For a mortgage to be considered seriously underwater, the combined loan amount secured by the property must be at least 25 percent higher than the property’s estimated market value.

The number of seriously underwater mortgagors in the U.S. in Q3 accounted for a combined total of $1.4 billion in negative equity, according to RealtyTrac.

The nation’s seriously underwater rate has been steadily declining since Q2 2012, according to RealtyTrac. For that quarter, properties with a mortgage in the U.S. that were seriously underwater reached their peak at 12.8 million (29 percent). By Q3 2013, the number of seriously underwater properties in the nation had fallen to 10.7 million, representing 23 percent of the nation’s mortgages. In Q2 2014, RealtyTrac reported there were 9.1 million seriously underwater properties, or 17 percent of all mortgages in the U.S.

“The decrease in underwater properties is promising but the estimated $1.4 trillion in negative equity means that the flood waters are not receding as quickly as they were before, corresponding to slowing home price appreciation,” said Daren Blomquist, vice president at RealtyTrac. “Slower price appreciation means the 8 million homeowners seriously underwater could still have a long road back to positive equity.”

The percentage of seriously underwater properties that were in foreclosure also declined quarter-over-quarter in Q3 from 44 percent down to 39 percent. That number has also been steadily dropping – it was reported at 56 percent for Q3 2013, according to RealtyTrac. Meanwhile, the share of foreclosures with positive equity jumped up from 34 percent in Q2 to 38 percent in Q3.

RealtyTrac reported that about 8.5 million properties were on the verge of resurfacing in Q3, with between 10 percent negative equity and 10 percent positive equity. The percentage of properties on the verge of resurfacing for Q3 represented 16 percent of all mortgages in the U.S., a decline from 17 percent in Q2.

Equity-rich properties, which are properties with at least 50 percent equity, increased to 10.8 million in the U.S. for Q3 (20 percent of all properties with a mortgage) from 9.9 million (19 percent) in Q2. Equity-rich mortgagors combined for about $2.9 billion in positive equity, according to RealtyTrac.

“We wanted to paint a picture of the typical seriously underwater homeowner and what we found was that homeowners who bought or refinanced during the housing bubble (2004 to 2008), own a home worth less than $200,000, live in the Sun Belt or Rust Belt and live in a Democratic Congressional District were more likely to be seriously underwater. On the other end, the highest percentages of equity rich homeowners were those who bought or refinanced between 1994 and 1998, those with properties valued at $500,000 or more, live in New York, California, or D.C., and these folks also tend to live in Democratic Congressional districts.”

Author: Brian Honea October 22, 2014