6.9 Million U.S. Homes with Mortgages Seriously Underwater in Q3

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According to RealtyTrac's Q3 2015 U.S. Home Equity & Underwater Report, as of the end of the third quarter there were 6,917,673 U.S. residential properties that were 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.

The third quarter underwater numbers were down from 7,443,580 seriously underwater homes representing 13.3 percent of all homes with a mortgage in the previous quarter and at the lowest level for both total mortgages and share of mortgages since RealtyTrac began tracking underwater data in the first quarter of 2012. The number and share of seriously underwater homes peaked in the second quarter of 2012 at 12,824,729 seriously homes representing 28.6 percent of all homes with a mortgage.

As of the end of the third quarter there were 10,476,259 U.S. residential properties that were equity rich -- with at least 50 percent equity -- 19.2 percent of all properties with a mortgage. That was down from 10,963,041 equity rich properties representing 19.6 percent of all properties with a mortgage in the second quarter and down from 10,812,968 equity rich properties representing 20.1 percent of all properties with a mortgage in the third quarter of 2014.

"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," said Daren Blomquist, vice president at RealtyTrac. "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."

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. Top on the list was Lakeland, Florida, (28.0 percent), followed by 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) and rounding at the top 10 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," said Michael Mahon, president at HER Realtors, covering the Cincinnati, Dayton and Columbus markets in Ohio. "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 where the share of distressed properties --  those in some stage of foreclosure --  that were  seriously underwater exceeded 50 percent in the second quarter of 2015 included Deltona-Daytona Beach, Florida (58.5 percent),  Las Vegas, Nevada (56.5 percent), Lakeland, Florida (55.8 percent), Palm Bay, Florida (54.1 percent), Cleveland, Ohio (53.4 percent), Chicago, Illinois (52.6 percent), Tampa, Florida (52.3 percent ), and Orlando, Florida (51.7 percent).

"Our South Florida strong real estate sun continues to dry out the distressed properties of yesterday," said Mike Pappas, CEO and president of the Keyes Company, covering the South Florida real estate market. "As prices continue to rise we see thousands of property owners' move into positive equity. This bodes well as our residential home inventory still remains low."

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), and 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," said Matthew Gardner, chief economist at Windermere Real Estate, covering the Seattle market. "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."

Major markets where the share of in-foreclosure properties with positive equity exceeded 60 percent included Denver, Colorado (85.9 percent), Austin, Texas (83.3 percent), Honolulu, Hawaii (79.5 percent), Scranton, Pennsylvania (77.8 percent), San Jose, California (77.3 percent), Pittsburgh, Pennsylvania (75.9 percent), McAllen, Texas (75.6 percent), Baton Rouge, Louisiana (71.6 percent) and Nashville, Tennessee (71.4 percent).