The amount of seriously underwater properties plunged to the lowest level in two years, with 8.1 million U.S. residential properties seriously underwater — where the combined loan amount secured by the property is at least 25% higher than the property’s estimated market value, RealtyTrac’s U.S. home equity and underwater report for the third quarter of 2014 said.

This represents 15% of all properties with a mortgage and an estimated $1.4 trillion in negative equity.

Last quarter, 9.1 million residential properties representing 17% of all properties with a mortgage were seriously underwater, and in the third quarter of 2013 10.7 million residential properties representing 23% of all properties with a mortgage were seriously underwater.

"The decrease in underwater properties is promising but the estimated $1.4 trillion in negative equity means that the flood waters are not receding as quickly as they were before, corresponding to slowing home price appreciation,” said Daren Blomquist, vice president at RealtyTrac.

“Slower price appreciation means the 8 million homeowners seriously underwater could still have a long road back to positive equity,” he continued.

Additionally, the universe of equity-rich properties — those with at least 50% equity — grew to 10.8 million representing 20% of all properties with a mortgage in the third quarter, up from 9.9 million representing 19% of all properties with a mortgage in the second quarter of 2014. 

Collectively these equity rich homeowners have an estimated $2.9 trillion in positive equity.

Another 8.5 million properties were on the verge of resurfacing in the third quarter, with between 10% negative equity and 10% positive equity. This segment represented 16% of all properties with a mortgage in the third quarter, and was down from 8.7 million properties representing 17% of all properties with a mortgage in the second quarter of 2014.

Fewer distressed properties had negative equity in the third quarter, with 39% of all properties in the foreclosure process seriously underwater — down from 44% in the second quarter of 2014 and down from 56% in the third quarter of 2013.

In comparison, the share of foreclosures with positive equity increased to 38% in the third quarter, up from 34% in the second quarter of 2014.

“We wanted to paint a picture of the typical seriously underwater homeowner and what we found was that homeowners who bought or refinanced during the housing bubble (2004 to 2008), own a home worth less than $200,000, live in the Sun Belt or Rust Belt and live in a Democratic Congressional District were more likely to be seriously underwater,” Blomquist noted.

“On the other end, the highest percentages of equity rich homeowners were those who bought or refinanced between 1994 and 1998, those with properties valued at $500,000 or more, live in NY, CA, DC and these folks also tend to live in Democratic Congressional districts,” he said. 

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