New Study Shows a Million Fewer Underwater Homeowners

Home MortgageMoneyTips.com

When the housing bubble burst, the subsequent crash in housing prices left millions of homeowners "underwater," owing more on their homes than they were worth. At the peak of the crisis in the first quarter of 2012, 31.4% of homeowners were underwater.

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Fortunately, the situation has improved considerably since then. The recent rise in home prices has brought quite a few people out of a negative-equity situation. According to online real estate database company, Zillow, in the third quarter of 2015, the total number of underwater homeowners is a bit over six million, a decrease of approximately one million over the previous quarter.

Overall, 13.4% of the nation's homeowners are underwater, compared to 16.9% one year ago. If the definition of underwater is expanded to include those who are effectively trapped in their mortgage because they lack sufficient equity to sell their home and buy another ("effective negative equity"), the number climbs to 30%.

The situation may be improving overall, but some of the hardest-hit markets are having a particularly difficult time recovering from the housing crash. High levels of negative equity tend to distort local markets. It impacts both the supply and demand side by keeping people trapped in their homes, and it floods the market with foreclosed houses, often creating a mismatch of the available properties and the needs of local homebuyers. This makes it difficult to bring the housing market back into balance.