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Real Estate: 9.3 Million Homes Underwater, Says RealtyTrac

Underwater real estate continues to dog economyReal estate owners are not out of the woods yet even as the stock market nears record highs and home values have increased at least 10 percent from 2012.

A new home equity study from RealtyTrac shows a tale of two housing markets: One side are 9.3 million homeowners who are deeply in debt, individuals who have properties worth at least 25% less than the mortgages secured by their homes. On the other side are 9.1 million homeowners with mortgages who enjoy at least 50 percent equity.

The good news is that in May 2012 the situation was vastly worse: 12.8 million were deeply underwater, a term coined by RealtyTrac. In other words, while thing are bad for millions of homeowners today, things used to be bad for a lot more. We are, slowly, making progress.

Real Estate

“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,” said 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.”

What the RealtyTrac figures really show is that we remain a deeply divided nation. Some among us are doing well, a few are doing very well and yet a large percentage of the population has never recovered from the foreclosure meltdown from the Bush years. Household incomes remain 8.9 percent lower than in 1999, according to the Census Bureau. That means many potential buyers cannot purchase homes because they lack the income to afford mortgages at today’s rates — rates which are significantly below historic averages.

“There are still millions of homeowners who are in such a deep equity hole that it will take years for them to regain their equity,” Blomquist said. “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.”

State and Metro Real Estate

The broad national trends reported by RealtyTrac do not extend to all states and metro areas — some are doing better than the national average and some are doing worse. RealtyTrac offers these examples:


___ States with the highest percentage of residential properties deeply underwater in December were Nevada (38 percent), Florida (34 percent), Illinois (32 percent), Michigan (31 percent), Missouri (28 percent), and Ohio (28 percent).

___ Major metropolitan statistical areas with the highest percentage of residential properties deeply underwater in December were Las Vegas (41 percent), Orlando, Fla., (36 percent), Detroit (35 percent), Tampa, Fla., (35 percent), Miami (33 percent), and Chicago (33 percent).

___ States with the highest percentage of equity-rich residential properties were Hawaii (36 percent), New York (33 percent), California (26 percent), Montana (24 percent), and Maine (24 percent). The District of Columbia also posted an equity-rich rate of 24 percent.

___ Major metropolitan statistical areas with the highest percentage of equity-rich residential properties were San Jose, Calif., (37 percent), San Francisco (33 percent), Pittsburgh (30 percent), Buffalo, N.Y. (30 percent), and Los Angeles (29 percent).

___ States with the highest percentage of deeply underwater residential properties in the foreclosure process included Nevada (65 percent), Florida (61 percent), Illinois (61 percent), Michigan (55 percent), and Ohio (48 percent).

___ Major metro areas with the highest percentage of deeply underwater residential properties in the foreclosure process were Las Vegas (66 percent), Tampa, Fla. (63 percent), Chicago (62 percent), Orlando (61 percent), and Detroit (61 percent).

___ States with the highest percentage of foreclosure properties with some equity included Oklahoma (62 percent), Colorado (54 percent), New York (52 percent), Texas (51 percent) and North Carolina (45 percent).

___ Major metro areas with the highest percentage of foreclosure properties with some equity were Buffalo, N.Y. (74 percent), Pittsburgh (73 percent), Austin (67 percent), Denver (64 percent), and Oklahoma City (63 percent).

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