CoreLogic: Fewer Underwater Mortgages in 3Q. Foreclosure Sales Drove Reduction

“Negativernequity is a primary factor holding back the housing market and broaderrneconomy,” Mark Fleming, chief economist with CoreLogic said Monday as hisrncompany released third quarter data showing continued improvement in the number of underwater mortgages.  Fleming however warned thatrnprice declines are apparently accelerating which could put a stop to or reversernthe recent positive trends in equity. </p

CoreLogic reportedrnthat 10.8 million or 22.5 percent of all residential properties with mortgagesrnhad negative equity at the end of the third quarter compared to 11.0 million orrn23 percent at the end of the second quarter. This is the third consecutivernquarter in which negative equity declined. The company, however, attributed thernmost recent decrease to foreclosures of underwater properties ratherrnthan on an increase in home values.  Thernaggregate level of negative equity declined to $744 in the third quarterrncompared to $800 billion at the end of 2009.</p

An additional 2.4rnmillion properties or 5 percent of the total mortgages were termedrn”near-negative” because their owners had less than 5 percent equity.</p

Negative equityrnremains concentrated in five states.  In Nevada,rnwhich has led the nation in foreclosures for nearly two years, 67 percent ofrnmortgaged properties were “upside down” while in Arizona and Florida,rntwo other states that continue to be plagued with foreclosures, underwaterrnproperties accounted for 49 and 46 percent of all mortgages respectively.  In Michigan 38 percent of properties were inrnnegative territory and in California 32 percent.  Alaska, about which little is usually heardrnin such studies, had the largest improvement in negative equity with a drop ofrn1.8 percent.  The other states showingrnthe most improvement were also the states that have been hardest hit; Nevadarnimproved by 1.6 percent, Arizona’s negative equity dropped 1.4 percent, Californiarn1.2 percent and Florida 0.9 percent. </p

In contrast tornstates like Nevada and Arizona, seven states have negative equity in singlerndigits; Oklahoma has the lowest negative equity at 6 percent followed by NewrnYork at 7 percent and Pennsylvania and North Dakota tied at 7.4 percent. </p

Not all homeownersrnare upside down.  The Northeast is arnparticularly bright spot with more than half of New York residents having 50rnpercent or more equity in their homes followed by Hawaii at 43 percent,rnMassachusetts, 40 percent; Connecticut, 39 percent; and Rhode Island 40rnpercent.  Rhode Island displays what thernreport calls a “barbell” distribution, appearing among the top 15 statesrnfor both negative equity and for homeowners with more than 50 percent positivernequity.  Several other states includingrnMassachusetts and New Jersey display the same barbell effect.</p

The report presentsrna rather curious scenario under which it postulates that underwater homeownersrnare not truly homeowners because their lack of equity means they are lessrnlikely to maintain and improve their property and are more likely to behavernlike renters.  The Census says there wasrna 66.9 percent homeownership rate in the third quarter, a decrease from the peak figurernof 69.2 percent in Q4 2004.  CoreLogicrnuses its premise to reduce the official homeownership rate to an effective raternof 62.4 percent in 3Q by removing all homeowners with severely negative equity,rni.e. over 25 percent.  This reduces thern”official” rate by 4.5 percentage points.  If all negative equity properties are removedrnfrom homeownership statistics, the effective rate becomes 56.6 percent – over 10rnpercent lower than the official rate.</p

CoreLogic’s databasernincludes 48 million properties with a mortgage, about 85 percent of thernnational total.  State level data doesrnnot include five states (Louisiana, Maine, Mississippi, South Dakota, Vermont,rnand Wyoming) because of the small numbers of mortgage properties.    

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