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13 Million Americans Still Under Water on Mortgages

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Millions of Americans saw their mortgages slip underwater during the housing crisis, and even now, with prices improving considerably, a great number of them are still dealing with this problem, or a similar one.

The number of Americans who still owe more on their mortgages than the properties are worth totaled 13 million at the end of the first quarter, accounting for more than a quarter of all homeowners, according to the latest Negative Equity Report from the housing market tracking firm Zillow. However, a similar problem persists for those who only recently saw themselves climb back into positive equity.

Another 18.2 percent of consumers who previously had underwater mortgages still have equity so low that it is essentially impossible for them to sell their homes without going out of pocket to cover the costs typically associated with moving, the report said. Usually property owners need to have equity of 20 percent or more to effectively cover these costs. Altogether, 43.6 percent of homeowners have either real or “effective” negative equity, totaling 22.3 million people nationwide.

“Reaching positive equity, even barely, is an important milestone,” said Zillow chief economist Stan Humphries. “But things such as real estate agents’ fees and a down payment for the next home traditionally come out of the proceeds from the prior home’s sale. Without enough equity, these costs will instead have to come out of a homeowner’s pocket, leaving many still stuck. Looking at the effective negative equity rate could explain why recent, healthy declines in the number of underwater borrowers haven’t yet translated into more homes for sale.”

The places where instances of both real and effective negative equity exist most broadly are, perhaps not surprisingly, the markets hit hardest by the housing downturn, the report said. Las Vegas, for instance, has 71.5 percent of its homeowners in this category, while Atlanta (64.1 percent) and Riverside, California (59.7 percent) round out the top three. Fortunately, it’s believed that rising prices will help to bring another 1.4 million homeowners nationwide into positive equity by the end of this period next year.

Prices are likely to continue rising because economic improvements are putting consumers in a better position to afford home purchases they may have been forced to put off in recent years. That, in turn, could help many homeowners with effective or actual negative equity to better handle their situations.

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