IRVINE, CA—RealtyTrac has released its Q2 2015 U.S. Home Equity & Underwater Report, which shows that as of the end of the second quarter there were 7,443,580 US residential properties that were seriously underwater. That measure, is where the combined loan amount secured by the property is at least 25% higher than the property's estimated market value. And the 7.4 million figure representing 13.3% of all properties with a mortgage.

The second quarter underwater numbers were up from 7,341,922 seriously underwater homes representing 13.2% of all homes with a mortgage in the previous quarter — making Q2 the second consecutive quarter with a slight increase in both the number and share of seriously underwater properties. But the numbers are down from 9,074,449 (17.2%) in the second quarter of 2014. The number and share of seriously underwater homes peaked in the second quarter of 2012 at 12,824,729 seriously homes representing 28.6% of all homes with a mortgage.

“Slowing home price appreciation in 2015 has resulted in the share of seriously underwater properties plateauing at about 13% of all properties with a mortgage,” said Daren Blomquist, vice president at RealtyTrac. “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.”

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%, down from 35.1% in the first quarter of 2015 and down from 43.6% 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% in the second quarter, up slightly from 42.1% in the first quarter and up from 34.1% in the second quarter of 2014.

Historical U.S. Underwater Trends

Qtr-Yr

Percent of All Loans Seriously Underwater

QoQ Pct Change

Percent of Loans in Foreclosure Seriously Underwater

QoQ Pct Change

Q1 2012

27.8%

59.1%

Q2 2012

28.6%

0.8%

62.0%

2.9%

Q3 2012

27.6%

-1.0%

60.0%

-1.9%

Q1 2013

25.8%

-1.7%

58.2%

-1.8%

Q2 2013

25.7%

-0.1%

57.5%

-0.8%

Q3 2013

23.2%

-2.5%

56.3%

-1.2%

Q4 2013

18.8%

-4.4%

47.5%

-8.8%

Q1 2014

17.5%

-1.4%

45.0%

-2.5%

Q2 2014

17.2%

-0.2%

43.6%

-1.4%

Q3 2014

15.0%

-2.2%

38.9%

-4.7%

Q4 2014

12.7%

-2.3%

34.6%

-4.2%

Q1 2015

13.2%

0.4%

35.1%

0.4%

Q2 2015

13.3%

0.1%

34.4%

Residential properties owned between seven years and 11 years accounted for 38% 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% of which are seriously underwater, followed by those owned for 10 years, 19.8% of which are seriously underwater, and those owned for eight years, 19.0% of which are seriously underwater.

On the other side of the equity equation, the universe of equity-rich mortgaged properties — those with at least 50% equity — decreased on a quarter-over-quarter basis for the second straight quarter, down to 10.9 million representing 19.6% of all properties with a mortgage at the end of the second quarter. That was down from 11.1 million representing 19.8% at the end of the first quarter and down from 11.3 million representing 20.3% at the end of the fourth quarter, but still up from 9.9 million representing 18.9% at the end of the second quarter of 2014.

“Although the number of equity rich homeowners with a mortgage has increased by 1 million compared to a year ago, that number dropped by nearly 300,000 between the end of 2014 and the middle of 2015,” Blomquist added. “The number of homeowners with a mortgage who have at least 20% 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. 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, CA (43.8%), San Francisco, (38.3%), Honolulu (36.7%), Los Angeles, (32%), and New York City (30.7%) lead the category.

To find out more visit RealtyTrac.

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David Phillips

David Phillips is a Chicago-based freelance writer and consultant with more than 20 years experience in business and community news. He also has extensive reporting experience in the food manufacturing industry for national trade publications.