Rising home prices continue to pull underwater homeowners into positive equity positions, with 791,000 additional properties returning to a situation in which the borrower no longer owes more than the home is worth in the third quarter, CoreLogic (CLGX) said Tuesday.
The Irvine, Calif.-based research firm reported that as of 3Q, the total number of mortgaged properties with equity remains at 42.6 million, and of those, only 6.4 million – or 13% of all properties – remained in negative equity by the end of the third quarter. This is down from 7.2 million upside homes in the second quarter of this year.
Negative equity is usually the result of declining property values or an increase in mortgage debt, CoreLogic points out.
The overall national value of negative equity continues to fall as home prices rise, giving more homeowners a chance to benefit from refinancing or selling opportunities. Aggregate negative equity in the U.S. hit $397 billion in 3Q, down from $430 billion at the end of the second quarter and a $33.7 billion slide.
CoreLogic attributes the sudden rise to improving home prices, but of those 42.6 million properties with positive equity, 10 million have less than 20% equity, leaving them in a situation where it’s still hard to refinance due to underwriting constraints.
Borrowers with less than 5% equity remain at risk of becoming upside-down if home prices begin to fall again.
"Fewer than 7 million homeowners are underwater, with a total mortgage debt of $1.6 trillion," said Mark Fleming, chief economist for CoreLogic. "Negative equity will decline even further in the coming quarters as the housing market continues to improve."
The state of Nevada had the highest percentage of mortgage properties in negative equity at 32.2%, followed by Florida (28.8%), Arizona (22.5%), Ohio (18%) and Georgia (17.8%).
