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Negative Equity Levels Expected to Keep Falling Next Year

By Allison Halliday | December 23, 2013

During the third quarter of this year negative equity amounts continued to decline, according to CoreLogic. In this third quarter an estimated 791,000 homes returned to positive equity, but there are still about 6.4 million homes that are considered to be underwater.

A home is underwater when it has a negative equity which is where the amount owed on the mortgage exceeds the current value of the home on the property market. A home can fall into negative equity if the mortgage debt increases, or if the property loses its value. Sometimes it can be a combination of both factors. By the end of the third quarter of this year the national aggregate value of negative equity in the US was $397 billion, considerably less than the $430 billion recorded at the end of the previous quarter in 2013. This decrease of $33.7 billion was largely due to rising home prices.

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At the moment there are an estimated 42.6 million homes in the United States that have positive equity. However just over a fifth have less than 20% equity, something that CoreLogic terms as being "under equitied.” According to the article in Mortgage News, property owners with little or no equity face difficulty refinancing loans, and this also means they are unlikely to be able to move. More than 1.5 million homeowners have less than 5% equity, and this group are considered to be at risk should property prices fall again.

The highest rate of negative equity is in Nevada, accounting for 32.2% of all homes with mortgages. The second highest state is Florida at 28.8%, followed by Arizona at 22.5%, Ohio at 18% and Georgia at 17.8%. Just these five states account for more than a third of negative equity in the United States. There are 3.8 million homeowners who have a single mortgage on their property, and this group accounted for $202 billion of the $397 billion total of aggregate negative equity. These homeowners are in negative equity by an average of $53,000, and the average outstanding mortgage is $221,000. There are 2.5 million homeowners who have a home equity loan as well as the mortgage and who owe an average of $296,000. This group is in negative equity by an average of $77,000. Most of the homes in negative equity are at the lower end of the market and are valued at less than $200,000. In comparison 92% of homes with a value greater than this amount have equity.

The good news is that negative equity is expected to decline even more as the property market continues to recover. Experts expect to see more homeowners enter into positive equity next year.

Allison Halliday is a Realty Biz News contributing writer. She handles International Real Estate and is a seasoned blogger.
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