Almost a third of US property owners underwater with their loans, research shows

Almost a third, 31.4%, of US home owners with mortgages were underwater on their mortgage in the first quarter of 2012, despite rising home values, according to a new report.

Zillow’s first quarter Negative Equity Report, shows that collectively, underwater home owners owed $1.2 trillion more than their homes were worth.

Negative equity rose slightly from 31.1% in the fourth quarter, and declined from 32.4% a year ago and remained high despite increasing home values in the latter part of the first quarter, the Zillow report adds.

A slower pace of foreclosures after the robo-signing issues of 2010 contributed to slower progress in working down negative equity. Foreclosures cause homes to come out of negative equity when a bank or third party takes ownership.

Despite the high rate of negative equity, the majority of underwater home owners are current on their mortgages. Nine in 10 continue to make their mortgage and home loan payments on time, with just 10.1% of underwater home owners more than 90 days delinquent.

‘While it was disappointing to see negative equity numbers remain so high, it is important to note that negative equity remains only a paper loss for the vast majority of underwater home owners,’ said Zillow chief economist Stan Humphries.

‘As home values slowly increase and these home owners continue to pay down their principal, they will surface again. That said, negative equity remains an issue for the housing market as a whole, and poses a risk to any recovery,’ he pointed out.

‘Not only does negative equity tie many to their homes, by making home owners unable to move when they may want to, but if economic growth slows and unemployment rises, more homeowners will be unable to make timely mortgage payments, increasing delinquency rates and eventually foreclosures,’ he added.
Additionally the report says that many home owners in negative equity are not deeply underwater. Nearly 40% of underwater home owners, or 12.4% of all home owners with a mortgage, owe between 1 and 20% more than their home is worth. An additional 21% of underwater home owners, or 6.6% of all home owners with a mortgage, owe between 21 and 40% more than their home is worth.

However, about 2.4 million, or 4.7% of all home owners with mortgages owe more than double what their home is worth. In the Las Vegas metro area, nearly 90,000, or 26.8% of home owners with mortgages owe double.

On a state level, Nevada has the highest percentage of negative equity, with 66.9% of all home owners with mortgages underwater. Arizona at 52.3%, Georgia at 46.8%, Florida at 46.3% and Michigan at 41.7% also have high percentages of home owners in negative equity.

These results are from the first edition of the new Zillow Negative Equity Report, which looks at current outstanding loan amounts for individual owner occupied homes and compares them to those homes' current estimated values.

This is the only report that uses current outstanding loan balances on all mortgages when calculating negative equity. Other reports estimate current outstanding loan balance based on the most recent loan on a property, i.e., the original loan amount at time of purchase or refinance.