Declines in home values have pushed a high number of home owners to be “underwater,” in which borrowers owe more on their properties than they are current worth, and it’s hampering home sales, according to new data by CoreLogic. 

About 10.9 million, or 22.5 percent, of all residential properties with a mortgage were in negative equity at the end of the second quarter, down slightly from 22.7 percent in the first quarter, CoreLogic reports. What’s more, about 2.4 million borrowers had less than 5 percent equity, which CoreLogic refers to as “near-negative equity,” in the second quarter. 

Since the peak in home sales in 2005, nondistressed sales in ZIP codes with low negative equity have dropped 61 percent, compared to an 83 percent sales decline in high negative equity ZIP codes. 

“The typical seasonal changes in sales volume in high negative equity ZIP codes is very muted, which indicates that nondistressed sales are being heavily impacted by the high levels of negative equity in their neighborhood, even if sellers have equity,” according to CoreLogic’s report. 

“High negative equity is holding back refinancing and sales activity and is a major impediment to the housing market recovery,” says Mark Fleming, chief economist with CoreLogic. “The hardest hit markets have improved over the last year, primarily as a result of foreclosures. But nationally, the level of mortgage debt remains high relative to home prices.” 

States With the Highest Number of Underwater Borrowers

1. Nevada: 60 percent of all properties with a mortgage were considered underwater

2. Arizona: 49%

3. Florida: 45%

4. Michigan: 36%

5. California: 30%

By REALTOR® Magazine Daily News