Negative equity amounts continued to shrink during the third quarter of 2013 CoreLogic said today. An estimated 791,000 properties regained an equity position during the quarter, leaving about 6.4 million homes "under water."
CoreLogic's latest negative equity analysis reports that about 13 percent of all mortgaged homes in the U.S. remain in negative territory compared to 14.7 percent or 7.2 million homes at the end of the second quarter.
A house is said to have negative equity or be underwater when more is owed on the mortgage than the market value of the property. Negative equity can occur because of a decline in value, an increase in mortgage debt or a combination of both.
The national aggregate value of negative equity was $397 billion at the end of the third quarter compared to $430 billion at the end of the second quarter of 2013, a decrease of $33.7 billion. This decrease was driven in large part by an improvement in home prices.
There are an estimated 42.6 million homes in the U.S. with positive equity, but 10 million or over one-fifth of them (20.4 percent) have less than 20 percent equity, what CoreLogic calls being "under-equitied. Their owners may have difficulty refinancing because of underwriting requirements and their ability to buy in order to move may be similarly constrained. More than 1.5 of these under-equitied owners have less than 5 percent or what is called near-negative equity and are considered at risk should home prices fall.
Nevada had the highest incidence of negative equity, 32.2 percent of all mortgaged homes, followed by Florida (28.8 percent), Arizona (22.5 percent), Ohio (18.0 percent) and Georgia (17.8 percent). These five states together accounted for 36.4 percent of negative equity in the U.S.
The 3.8 million homeowners with a single mortgage on their homes accounted for $202 billion of the $397 billion in aggregate negative equity. Their average mortgage balance is $221,000 and they are underwater by an average of $53,000. The 2.5 million homeowners with both a mortgage and a home equity loan have an average combined balance of $296,000 and are underwater by an average of $77,000.
The bulk of positive home equity for mortgaged properties is concentrated at the high end of the housing market. For example, 92 percent of homes valued at greater than $200,000 have equity compared with 82 percent of homes valued at less than $200,000.
"Rising home prices continued to help homeowners regain their lost equity in the third quarter of 2013," said Mark Fleming, chief economist for CoreLogic. "Fewer than 7 million homeowners are underwater, with a total mortgage debt of $1.6 trillion. Negative equity will decline even further in the coming quarters as the housing market continues to improve."
"We should see a further rebound in consumer confidence and economic growth in 2014 as more homeowners escape the negative equity trap," said Anand Nallathambi, president and CEO of CoreLogic. "Home price appreciation has helped more than 3 million property owners regain equity since the first quarter of 2013."