Negative-Equity Homes Fall: Another Sign We've Hit Bottom

The number of homes with negative equity -- when a homeowner owes more on it than its worth -- took a tiny tumble this month, according to CoreLogic.

Homes in negative territory still make up 24 percent of all residential properties with a mortgage, but the number fell by 100,000: From 11.3 million to 11.2 million.

That may not sound like much, but it nonetheless indicates that housing seems to have found a bottom. Another 2.3 million home borrowers have less than 5 percent equity in their homes.

Now for more good news, at least for residents of most states.
The bulk of negative-equity properties are concentrated in only five states, topped by Nevada (see above photo), where 70 percent of all mortgaged properties are underwater. The other leaders are Arizona (51 percent), Florida (48 percent ), Michigan (39 percent) and California (34 percent).

In the bad-news column, 4.9 million borrowers (or 10.4 percent) are underwater by 25 percent or more. But that's down from 5 million borrowers last month. The total aggregate-dollar value of negative equity for these underwater borrowers was $656 billion last month.

"The two most important triggers of default, negative equity and unemployment, have stabilized over the last six months," said the chief economist for CoreLogic. Mark Fleming. In a statement released with the May report, Fleming also said that he expects the "typical underwater borrower" will "regain their lost equity over the next five to seven years."

CoreLogic maintains a database of 47 million properties with a mortgage. That represents more than 85 percent of all mortgages in the U.S. It uses public record data to develop its information on first and second mortgage liens, then adjusts this data for amortization and home equity utilization.

The Las Vegas core-based statistical area (CBSA) remains the top-ranked underwater city in the U.S., with 75 percent of mortgaged properties in negative equity. Other CBSAs with a large percentage of underwater mortgages include Stockton (65 percent), Modesto (62 percent), Vallejo-Fairfield (60 percent) and Phoenix (58 percent).

Phoenix holds the record for the most underwater borrowers -- 550,000 -- the most households underwater in any major metropolitan marketplace. The next four areas include Riverside (463,000), Los Angeles (406,000), Atlanta (399,000) and Chicago (365,000) . You can check out the negative equity status of the top 50 metropolitan areas at CoreLogic.

In the hardest-hit states, those property owners who have negative equity above 25 percent might have to wait at least 10 to 20 years to see a recovery, based on previous reports by CoreLogic. That's why we are seeing an increasing number of people choose to strategically default on their mortgage.

Many of these people have seen their home's value drop by $100,000 or more and question whether it's worth continuing to pay on a property; otherwise they might not be able to get out of the mortgage without cash to buy their way out.

For those unfortunate homeowners, it's going to be a long time before the situation improves. But for the rest of us, the future of home buying and selling is starting to improve.

Lita Epstein has written more than 25 books, including "The Complete Idiot's Guide to Personal Bankruptcy" and "The 250 Questions You Should Ask About Avoiding Foreclosure."

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