As of the end of the third quarter there were 6,917,673 U.S. residential properties seriously underwater — where the combined loan amount secured by the property is at least 25 percent higher than the property’s estimated market value — representing 12.7 percent of all properties with a mortgage, according to a new report from RealtyTrac.com. “After a lull late last year and early this year, home sales volume and average sales prices picked up dramatically again in the second and third quarters of this year, resulting in a substantial drop in seriously underwater homeowners,” Daren Blomquist, vice president at RealtyTrac, said in a release. “On the other hand, the number and share of equity rich homeowners also dropped dramatically between the second and third quarters — continuing a trend from the previous two quarters — evidence that more homeowners in this category are leveraging their equity through a refinance, move-up sale or by completely cashing out of the housing market.” Some highlights from the underwater homes report There were 6.9 million seriously underwater (at least 25 percent underwater) U.S. residential properties at the end of Q3 2015, down more than half a million from the previous quarter and down more than 1.2 million compared to a year ago. A surge in home sales volume and prices in the second and third quarters account for the dramatic drop in seriously underwater homeowners. There were 10.5 million equity rich (at least 50 percent equity) U.S. residential properties at the end of the third quarter, down nearly a half million from the second quarter. This indicates more homeowners with equity are leveraging that equity with a refinance, a move-up sale and purchase or by cashing out of the housing market completely. Only one in three properties in foreclosure was seriously underwater, the lowest level since RealtyTrac began tracking in the Q1 2012 and down from a peak of 62 percent underwater in the second quarter of 2012. Historical U.S. Underwater & Equity Rich Trends One-third of homeowners in foreclosure seriously underwater The share of distressed properties — those in some stage of the foreclosure — that were underwater at the end of the third quarter were also at the lowest level since the first quarter of 2012. As of the end of the third quarter, 33.4 percent of distressed properties were seriously underwater, down 1 percentage point from the previous quarter and down 5.5 percentage points year over year. Conversely, the share of properties in foreclosure with positive equity increased to 43.4 percent in the third quarter, up slightly from 42.4 percent in the second quarter and up from 38.5 percent in the third quarter of 2014. Homes with a higher estimated value are less likely to be seriously underwater Among properties with an estimated market value under $200,000, 20.2 percent were seriously underwater, while only 5.0 percent of properties with a value exceeding $750,000 were seriously underwater. On the other end of the spectrum, 14.3 percent of properties valued under $200,000 were equity rich, while 38.0 percent of properties valued over $750,000 were equity rich. Homes owned five to 10 years most likely to be seriously underwater Among residential properties with a mortgage that have been owned between five and 10 years, 17.2 percent are seriously underwater — the highest share of any years owned range analyzed by RealtyTrac. On the other end of the spectrum, 39.3 percent of homes owned 20 years or more are equity rich — the highest equity rich share of any years owned range analyzed by RealtyTrac. Markets with the most seriously underwater properties Out of the top 10 markets with a population greater than 500,000 that had the highest percentage of seriously underwater properties, Florida markets took up six spots in Q3 2015. Lakeland, Florida, (28.0 percent) Las Vegas, Nevada (27.3 percent) Cleveland, Ohio (27.2 percent) Deltona-Daytona Beach, Florida (26.7 percent) Orlando, Florida (25.6 percent) Tampa, Florida (24.3 percent) Toledo, Ohio (24.1 percent) Chicago, Illinois (24,0 percent) Palm Bay, Florida (24.0 percent) Jacksonville, Florida (23.8 percent) “Every month this year, thousands of homeowners previously classed as seriously underwater across Ohio, continue to experience growth in personal wealth, due to rising home equity. High demand coupled with rising home prices, as well as monthly rental values, have contributed to a market environment of low inventory,” Michael Mahon, president at HER Realtors, in Ohio said in the release. “Homeowners on the cliff of falling behind in their mortgage payments are strongly encouraged to reach out to their local Realtor, to discuss how increased equity might provide for an opportunity to restructure debt, or a potential sale to pay off debt.” Markets with the highest share of equity rich properties Among metropolitan statistical areas with a population of at least 500,000, those with the highest share of equity rich residential properties with a mortgage were: San Jose, California (43.9 percent) San Francisco (37.9 percent) Honolulu (36.5 percent) Los Angeles (32.1 percent) New York (30.4 percent) “Given the price growth we are seeing in the Seattle housing market, it’s not surprising that equity is growing as well. This is a sign that many owners who were able to hold onto their homes through the housing crisis have recovered much, if not all, of their lost equity,” Matthew Gardner, chief economist at Windermere Real Estate, in Seattle market said in the release. “Unfortunately, even though the number of equity rich homeowners is on the rise, this isn’t translating into additional inventory in the Seattle market. As a result, we find ourselves in a proverbial “chicken-and-egg” situation where there are plenty of people who want to sell, but won’t list their home until they can buy something new. But they can’t buy something new until there are more homes for sale. Unfortunately, I see no end in sight to this cycle in the near term.”
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