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Less Borrowers Underwater, But It’s Not A Good Sign

By Mike WheatleyJune 06, 2011
  • The percentage of underwater homeowners, those who owe more than their home is worth, has dropped off slightly in the first quarter of this year, but only because so many homes have gone into foreclosure or been sold off as short sales.

    Despite the drop off, just over a quarter of US homeowners with mortgages are still underwater, says the latest CoreLogic report just released.

    Undewater mortgages drop off slightly in last quarter. Courtesy of Impact Lab

    Amongst homeowners who have taken out a second mortgage, 38 percent of these are in negative equity, while 18 percent of borrowers who didn’t take out home equity loans are underwater.

    The number of homeowners who are underwater slipped from 11. 1 million at the end of 2010 to just 10.9 million at the end of last month, meaning the percentage fell down from 23.1 to just 22.7 percent of US homeowners in trouble.

    However, this doesn’t mean things are improving. Additionally, 2.4 million homeowners are down to less than 5 percent equity, which brings the total number of homeowners who have little or nothing in the way of equity to 27.7 percent, just slightly down from 27.9 percent at the end of last year.

    Negative equity is going to be with us for a while yet. Courtesy of Rainbow GRP

    Unfortunately, all the falling numbers reflect is the fact that more and more short sales and foreclosures have been completed, rather than a growth in home equity. Should home values decrease any more, it’s almost certain that the number of homeowners in negative equity will increase.

    “Current indicators point to a positive albeit very slow economic growth, and this will slowly help borrowers from experiencing difficulties,” said Mark Fleming, CoreLogic’s chief economist.

    “However, the fact that negative equity is going to be with us for the immediate future at least is going to hold back the recovery in housing, as it will put off sales and refinancing activities.”

     

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