About 6.917 million U.S. residential properties – or about 12.7% of all properties with a mortgage – were seriously underwater as of the end of the third quarter – down from 7.443 million properties – or about 13.3% of all homes with a mortgage – in the second quarter, according to RealtyTrac.
For comparison purposes, about 12.824 million properties – or about 28.6% of all homes with a mortgage – were seriously underwater in the second quarter of 2012.
RealtyTrac defines ‘seriously underwater’ as when the combined loan amount secured by a property is at least 25% higher than the property's estimated market value.
Meanwhile, about 10.476 million properties – or about 19.2% of all properties with a mortgage – were equity rich (i.e., with at least 50% equity) at the end of the third quarter – down from 10.963 million – or 19.6% of all properties with a mortgage – in the second quarter and down from 10.812 million properties – or 20.1% of all properties with a mortgage – in the third quarter of 2014.
‘After a lull late last year and early this year, home sales volume and average sales prices picked up dramatically again in the second and third quarters of this year, resulting in a substantial drop in seriously underwater homeowners,’ explains Daren Blomquist, vice president of RealtyTrac, in a statement. ‘On the other hand, the number and share of equity-rich homeowners also dropped dramatically between the second and third quarters – continuing a trend from the previous two quarters – evidence that more homeowners in this category are leveraging their equity through a refinance, move-up sale or by completely cashing out of the housing market.’
As a result of home prices rising, the share of distressed properties that are underwater has dropped significantly. As of the end of the third quarter, 33.4% of distressed properties were seriously underwater – down 1% from the previous quarter and down 5.5% from the third quarter of 2014.
Meanwhile, the share of properties in foreclosure with positive equity increased to 43.4%, up slightly from 42.4% in the second quarter and up from 38.5% in the third quarter of 2014.
As has been revealed in earlier reports from RealtyTrac, properties with higher market values tend to be less underwater compared with homes with lower market values. For example, about 20.2% of homes with an estimated market value of under $200,000 were seriously underwater, while only about 5.0% of properties with a value exceeding $750,000 were seriously underwater.
On the other end of the spectrum, 14.3% of properties valued under $200,000 were equity rich, while 38.0% of properties valued over $750,000 were equity rich.
Interestingly, the report finds that homes owned five to 10 years are the most likely to be seriously underwater.
For more, including a breakdown of which states and cities have the most underwater homes, click here.