Nearly 29% of mortgaged homes underwater, report finds

[Huey P. Long]

Nearly 29% of mortgaged homes underwater, report findsBy Jane Hodges
A whopping 28.6 percent of homeowners with mortgages owe more on their loans than their homes could sell for, according to quarterly data released Tuesday by Zillow, a real estate website. That's up from 26.8 percent in the second quarter. Home values declined only 0.2 percent from the second quarter but were down 4.4 percent year over year.

The rising percentage of homes with "negative equity" or "underwater" status is due largely to how long the foreclosure sale process takes rather than home value fluctuations, said Zillow chief economist Stan Humphries. Prior to the "robo-signing" scandal around foreclosures that came to light in 2010, the negative equity rate hovered in the 21 to 23 percent range, but has been in the 26 to 28 range since due to added delays in foreclosure sales. While the rate of foreclosures is dropping, the time required for foreclosures to sell has lengthened.

"We're in uncharted waters," Humphries said in an interview. "More than one in four homes underwater and about 9 percent unemployment is a recipe for more foreclosures."

Homes with underwater status are often considered risks for future foreclosure, since owners could have trouble refinancing or selling and may opt for a foreclosure via "strategic default" if they feel they will never regain their lost equity.
Humphries estimates that home values will bottom out in 2012 at the earliest and said the foreclosure market will remain "robust" for the next two to four years.

In several cities, more than half of all homes with mortgages are underwater, including Phoenix (66.2 percent), Atlanta (58.7 percent), Riverside, Calif. (51.4 percent), Tampa (56.5 percent) and Sacramento (50.9 percent). Other big metro areas with a high percentage of underwater homes include Miami-Fort Lauderdale (46.7 percent), Chicago (46.2 pecent), Cleveland (41.5 percent) and Denver (38.5 percent).


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[FarCenter]

1. 11% of Households have underwater mortgages

Nationally, about 35% of households rent. Of the remaining 65% of households that are "homeowners", about 40% actually own their homes and 60% have mortgages. Of the ones with mortgages, 29% are underwater. So the breakdown is as follows:

35% Renters = 35%
26% Homeowners = .65 * .40 = 26%
28% Mortgagees not underwater = .65 * .60 * (1 - .29) = 28%
11% Mortgagees underwater = .65 * .60 * .29 = 11%