There were 7,443,580 U.S. residential properties that were seriously underwater — where the combined loan amount secured by the property is at least 25 percent higher than the property’s estimated market value — at the end of the second quarter 2015, according to a new report from RealtyTrac.com.
This represents a 13.3 percent of all properties with a mortgage.
The second quarter underwater numbers were up slightly from the previous quarter — making this the second consecutive quarter with a slight increase in both the number and share of seriously underwater properties. However, to keep this trend in perspective, the number and share of seriously underwater homes peaked in the second quarter of 2012 at 12,824,729 — or 28 percent of all homes with a mortgage.
Daren Blomquist
“Slowing home price appreciation in 2015 has resulted in the share of seriously underwater properties plateauing at about 13 percent of all properties with a mortgage,” Daren Blomquist, vice president at RealtyTrac, said in the release.
“However, the share of homeowners with the double-whammy of seriously underwater properties that are also in foreclosure is continuing to decrease and is now at the lowest level we’ve seen since we began tracking that metric in the first quarter of 2012.” Click here to see a video from RealtyTrac.com on this report.
The share of distressed properties — those in some stage of the foreclosure process — that were seriously underwater at the end of the second quarter was 34.4 percent, down from 35.1 percent in the first quarter of 2015 and down from 43.6 percent in the second quarter of 2014, to the lowest level since tracking began in the first quarter of 2012. Conversely, the share of foreclosures with positive equity increased to 42.4 percent in the second quarter, up slightly from 42.1 percent in the first quarter and up from 34.1 percent in the second quarter of 2014.
Share of equity-rich mortgaged properties up 1 million from year ago
The universe of equity-rich mortgaged properties — those with at least 50 percent equity — decreased on a quarter-over-quarter basis for the second straight quarter, down to 10.9 million, representing 19.6 percent of all properties with a mortgage at the end of the second quarter. That was down from 11.1 million, representing 19.8 percent, at the 
end of the first quarter and down from 11.3 million, representing 20.3 percent, at the end of the fourth quarter, but still up from 9.9 million, representing 18.9 percent, at the end of the second quarter of 2014.
“Although the number of equity-rich homeowners with a mortgage has increased by one million compared to a year ago, that number dropped by nearly 300,000 between the end of 2014 and the middle of 2015,” Blomquist said in the release.
“The number of homeowners with a mortgage who have at least 20 percent equity has dropped by more than 900,000 during the past six months, indicating that homeowners who have gained substantial equity thanks to the housing price recovery over the past three years are taking advantage of that newfound equity,” Blomquist said in the release. ”Some are leveraging that equity into a higher LTV refinance or a move-up purchase, some may be downsizing into an all-cash purchase, and some may be cashing out of homeownership altogether. Those homeowners cashing out of homeownership altogether would explain why the nation’s overall homeownership rate continued to decline in the second quarter even as homeownership rates among Millennials increased.”
Major metro areas with the highest percentage of equity-rich properties reflect areas of continued growth in home prices:
- San Jose, California (43.8 percent)
- San Francisco, California (38.3 percent)
- Honolulu, Hawaii (36.7 percent)
- Los Angeles, California (32 percent)
- New York (30.7 percent)
- Pittsburgh, Pennsylvania (29.4 percent)
- Poughkeepsie, New York (28.0 percent)
- Oxnard, California (27.5 percent)
- San Diego, California (26.9 percent)
“Over the past two years, the Seattle region has seen the percentage of homeowners who are seriously underwater drop by over 56 percent, one of the fastest and most impressive drops in the country,” Matthew Gardner, chief economist at Windermere Real Estate in Seattle, said in the release. “Usually a decline of this magnitude would suggest an uptick in the number of homes for sale, but unfortunately for Seattle, I don’t see this taking place. Many of these homeowners are simply too apprehensive or don’t have the financial capacity to move. But what we lose in new listings, we gain in overall market stability.”
Markets with the most seriously underwater properties
Markets with a population greater than 500,000 with the highest percentage of seriously underwater properties in Q2 2015 were:
- Lakeland, Florida (28.5 percent)
- Cleveland, Ohio (28.2 percent)
- Las Vegas, Nevada (27.9 percent)
- Akron, Ohio (27.3 percent)
- Orlando, Florida (26.1 percent)
- Tampa, Florida (24.8 percent)
- Chicago, Illinois (24.8 percent)
- Palm Bay, Florida (24.4 percent)
- Toledo, Ohio (24.3 percent)
Markets where the share of distressed properties — those in some stage of foreclosure — that were seriously underwater exceeded 50 percent in the first quarter of 2015 included:
- Las Vegas, Nevada (57.7 percent)
- Lakeland, Florida (54.8 percent)
- Cleveland, Ohio (52.9 percent)
- Chicago, Illinois (52.5 percent)
- Tampa, Florida (51.7 percent)
- Palm Bay, Florida (51.5 percent)
- Orlando, Florida (51.2 percent).
“Many consumers in foreclosure don’t understand the positive effects of the increased equity we are seeing across the Ohio markets, and the opportunities that this might bring in assisting them to avoid foreclosure,” Michael Mahon, president at HER Realtors in Ohio, said in the release. “Across much of Ohio, housing demand is driving increased prices and lower days on the market, contributing to positive equity growth. For homeowners facing troubled financial circumstances due to job loss, divorce, death in the family, or health concerns, the best advice would be to consult with a real estate agent early in the process.”
Markets with the highest share of positive equity foreclosures
Those states with the highest percent of distressed properties with positive equity included:
- Colorado (72.0 percent)
- Alaska (69.8 percent)
- Texas (66.4 percent)
- Oklahoma (65.2 percent)
- Nebraska (64.4 percent)
Major markets where the share of distressed properties with positive equity exceeded 60 percent included:
- Denver, Colorado (83.7 percent)
- Austin, Texas (83.1percent)
- Honolulu, Hawaii (77.5 percent)
- San Jose, California (77 percent)
- Pittsburgh, Pennsylvania (75.9 percent)
- Jackson, Mississippi (75 percent)
- Nashville, Tennessee (69.3 percent)
- Houston, Texas (69 percent)
“The strong South Florida price increases over the past few years have moved many homeowners from negative to positive equity. We would encourage the remaining distressed homeowners to ask for a Broker Price Opinion (BPO) regarding the value of their property — many may be surprised at their improving value,” Mike Pappas, CEO and president of Keyes Company in South Florida, said in the release.
“Many homeowners that found themselves upside down in their homes just a few years ago are finding that they are now in a much better position with equity to spare, based on the strong appreciation we have experienced over the last few years,” Greg Smith, owner/broker at RE/MAX Alliance in Denver, said in the release. “When we look at other areas, such as Las Vegas, where homes seriously underwater have dropped by close to 50 percent, we see the strengthening of the economy as a whole provided by housing.”
Homes owned seven to 11 years account for 38 percent of all seriously underwater homes
Residential properties owned between seven years and 11 years accounted for 38 percent of all seriously underwater homes as of the end of the second quarter. The highest seriously underwater rate is for homes owned for nine years, 21.6 percent of which are seriously underwater, followed by those owned for 10 years, 19.8 percent of which are seriously underwater, and those owned for eight years, 19.0 percent of which are seriously underwater.
Report methodology
The RealtyTrac U.S. Home Equity & Underwater report provides counts of residential properties based on several categories of equity — or loan to value (LTV) — at the state, metro and county level, along with the percentage of total residential properties with a mortgage that each equity category represents. The equity/LTV calculation is derived from a combination of record-level open loan data and record-level estimated property value data and is also matched against record-level foreclosure data to determine foreclosure status for each equity/LTV category.
Definitions
Seriously underwater: Loan to value ratio of 125 percent or above, meaning the homeowner owed at least 25 percent more than the estimated market value of the property.
Equity rich: Loan to value ratio of 50 percent or lower, meaning the homeowner had at least 50 percent equity.
Foreclosures w/equity: Properties in some stage of the foreclosure process (default or scheduled for auction, not including bank-owned) where the loan to value ratio was 100 percent or lower.
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