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Negative Equity Ducks a Bullet

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By Steve Cook

RISMedia, June 13, 2011— Despite double dipping to their lowest levels since 2009, housing prices in the first quarter failed to drive up the percentage of homeowners who are underwater on their mortgages. In fact, modest reductions in the number of homeowners who owe more on their mortgages than their homes are worth in three of the states hit hardest by foreclosures helped to slightly improve the national negative equity picture in the first quarter, according to data released by CoreLogic.

Some 10.9 million, or 22.7 percent, of all residential properties with a mortgage were in negative equity at the end of the first quarter of 2011, down slightly from 11.1 million, or 23.1 percent, in the fourth quarter.

An additional 2.4 million borrowers had less than five percent equity, referred to as near-negative equity, in the first quarter. Together, negative equity and near-negative equity mortgages accounted for 27.7 percent of all residential properties with a mortgage nationwide. In the fourth quarter, these two categories stood at 27.9 percent.

Nevada had the highest negative equity percentage with 63 percent of all mortgaged properties underwater, followed by Arizona (50 percent), Florida (46 percent), Michigan (36 percent) and California (31 percent). The negative equity share in the top 5 states was 39 percent, down from 40 percent in the fourth quarter. Excluding the top 5 states, the negative equity share was 16 percent in the current and previous quarter.

These hardest hit states showed an improvement during the quarter which contributed to the slight decline in the national negative equity. Nevada’s negative equity percentage fell 2.7 percent, Arizona’s fell 1.3 percent and Florida declined 1.3 percent. The majority of states either remained unchanged or had minor increases.

Las Vegas led the nation with a 66 percent negative equity share, followed by Stockton (56percent), Phoenix (55 percent), Modesto (55 percent) and Reno (54 percent). Outside metropolitan areas in the top 5 negative equity states, the metropolitan markets with the highest negative equity shares include Greeley, CO (38 percent), Boise (36 percent), and Atlanta (35 percent).

“Many borrowers in negative equity are still able and willing to make their mortgage payments. Those in negative equity and impacted by an income shock of some kind, such as a job loss, divorce, or death, are much more likely to be at risk of foreclosure or a short sale. The current economic indicators point to slow yet positive economic growth, which will slowly reduce the risk of borrowers experiencing income shocks,” says Mark Fleming, chief economist with CoreLogic. “Yet the existence of negative equity for the foreseeable future will weigh on the housing market recovery by holding back sale and refinance activity.”

For more information please visit www.realestateeconomywatch.com.

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