Over a Quarter of Americans Still Drowning in Home Debt

The number of homeowners who owe more than their house is worth stayed just about steady over the last six months, despite slight improvements in the unemployment rate and other economic indicators, according to a recent study by CoreLogic. More than a quarter of all American households are now underwater or nearly underwater on their mortgages.

“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 for CoreLogic, a financial research firm. “Yet the existence of negative equity for the foreseeable future will weigh on the housing market recovery.”

The average underwater household owes $52,000 more than the house is actually worth. People who took out home equity loans are in even worse shape. They owe $83,000 more than their house is worth on average, CoreLogic found. Over 40% of households with negative equity, or about 4.5 million families, also have home equity loans.

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The numbers also varied by state. In Nevada, a shocking 66% of all homes with mortgages were underwater (in Las Vegas alone, the proportion is 66%). Arizona and Florida came in second and third, with 50% and 46% of all mortgaged properties underwater respectively.

The total pain varies by state, too. People who are underwater in New York state owe an average of $129,000 more than their house is worth. In Ohio, the average person is underwater by $31,000, the lowest average in the country.

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These figures don’t even take into account the almost 2.5 million American households that have 5% equity or less in their homes. These people are at risk of going underwater, which makes them more likely to stop making mortgage payments and enter foreclosure.

Not everybody who’s underwater or headed in that direction will lose their homes, of course. Usually it takes multiple crises piling up at once to force people into foreclosure, according to Fleming.

“Many borrowers in negative equity are still able and willing to make their mortgage payments,” he says. “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.”

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Image: Michael Pereckas, via Flickr.com