Fewer homes ‘underwater’; foreclosures up

NEW YORK -- The number of homeowners who owe more than their houses are worth fell for the third straight quarter this summer.

About 10.8 million households, or 22.5 percent of all mortgaged homes, were "underwater" in the July-September quarter, housing data firm CoreLogic said Monday. That's down from 23 percent, or 11 million households, in the second quarter.

The decline came mainly because more homes had fallen into foreclosure and not because home prices had increased.

In a healthy housing market, about 5 percent of homeowners with a mortgage owe more than their homes are worth, CoreLogic's economist Sam Khater estimates. The firm does not have data from before the third quarter of 2009.

The ranks of underwater borrowers will remain high and likely rise because home values are expected to fall through the middle of next year. About 2.4 million hold only 5 percent or less equity in their homes, putting them near the tipping point if prices in their area fall.

Two-thirds of homeowners in Nevada who have a mortgage had negative home equity, the worst in the country. That's down from previous reports indicating as many as 80 percent of Nevada homeowners were underwater. It was followed by Arizona, Florida, Michigan and California.

"I think we're in a very fragile position because the integrity of the whole home mortgage system is at risk in the sand states with Las Vegas at the forefront," housing analyst Larry Murphy of Las Vegas-based SalesTraq said.

Median home prices in Las Vegas have fallen about 60 percent from their peak in 2006. The median existing home price in October was $113,000, a 5 percent decrease from a year ago, while new home median prices increased 3.8 percent to $213,910, SalesTraq reported.

Nevada, Arizona, California and Florida also posted the biggest decline in negative equity, mostly because a high percentage of severely underwater borrowers in those states fell into foreclosure. Las Vegas leads the nation with about one in every 79 households in some stage of foreclosure, according to Irvine, Calif.-based RealtyTrac.

People may love their homes, but they don't want to be "debt slaves" to a house that will never be worth what they paid for it, said Frank Nason, president of Residential Resources in Las Vegas.

"I'm actually seeing more people finally throwing up their hands and deciding they're going to walk away," he said. "Some of it's just fatigue, this constant drumbeat about strategic defaults and negative equity. People are just feeling beat down."

Oklahoma had the smallest percentage of underwater homeowners in the third quarter at 6 percent. Nine states recorded percentages less than 10 percent.

The total amount of negative equity decreased to $744 billion nationwide, down from $766 billion in the previous quarter.