CoreLogic released second-quarter negative equity data this morning, showing that 10.9 million, or roughly 22.5%, of all residential properties with a mortgage had negative equity at the end of the second quarter of 2011. That figure is down slightly from 22.7% in the first quarter. However, an additional 2.4 million borrowers had less than 5% equity, which is referred to as near-negative equity. Altogether, negative and near-negative equity mortgages accounted for 27.5% of all mortgaged residential properties in the U.S.
CoreLogic’s report shows that, though there has been some minor improvement in the number of people with negative equity in their homes, nearly three-quarters of all homeowners in negative equity situations are paying higher, above-market interest on their mortgages. Furthermore, nearly 10% of homeowners with mortgages have more than 25% negative equity, though that number is slowly declining as more homes are lost in foreclosure. According to CoreLogic, “Negative equity significantly limits the ability of borrowers to capture the benefit of the low-rate environment.”
The CoreLogic report breaks down negative equity by state, showing that in Nevada, 60% of all mortgaged properties are “underwater”, making it the worst of all the states studied. Arizona came in second with 49%, followed by Florida at 45%, Michigan at 36%, and California at 30%. Louisiana, Maine, Mississippi, South Dakota, Vermont, West Virginia, and Wyoming were not included in the study, as data was unavailable.
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The report did show that negative equity share in the hardest hit states did improve slightly in 2011 over the previous year; the average for the five worst states declined from 41% to 38%. And despite Nevada’s high number, underwater mortgages have declined significantly, from 68% in 2010 to 60% this year, though the high number of foreclosures is responsible for the lower number rather than an upswing in the housing market or economy.
With a higher number of undervalued properties flooding the market, demand for newly-built homes continues to decline. With CoreLogic’s second-quarter report showing no real improvement, keep an eye on these homebuilder stocks: Toll Brothers Inc. (NYSE:TOL), PulteGroup, Inc. (NYSE:PHM), M.D.C. Holdings, Inc. (NYSE:MDC), D.R. Horton, Inc. (NYSE:DHI), KB Home (NYSE:KBH), Lennar Corporation (NYSE:LEN), Comstock Homebuilding Companies, Inc. (NASDAQ:CHCI), Meritage Homes Corporation (NYSE:MTH), The Ryland Group, Inc. (NYSE:RYL), and Standard Pacific Corp. (NYSE:SPF).