Nearly 16 million U.S. homeowners were "under water" in the first quarter of 2012, owing more on their mortgage than their home is worth. Zillow.com's quarterly negative equity report shows collectively, underwater homeowners owed $1.2 trillion more than their homes were worth.
While negative equity is a serious drag on the housing market, a closer look at the numbers suggest it's not quite as bad as it seems. Zillow's analysis suggests foreclosure is not imminent for most underwater homeowners. Nine out of 10 continue to make their mortgage and home loan payments on time, with only 10.1 percent more than 90 days delinquent.
Under water but not drowning
In addition, many homeowners in negative equity are not deeply underwater. Nearly 40 percent of underwater homeowners owe between one and 20 percent more than their home is worth. At the other end of the scale,15 percent of underwater homeowners - approximately 2.4 million - owe more than double what their home is worth.
And of course, some markets have a much more serious equity problem than others. In the Las Vegas metro area, more than one-quarter of all homeowners with mortgages owes more than double what their home is worth. In other markets, prices are just about back to pre-recession levels.
"While it was disappointing to see negative equity numbers remain so high, it is important to note that negative equity remains only a paper loss for the vast majority of underwater homeowners," said Zillow Chief Economist Stan Humphries. "As home values slowly increase and these homeowners continue to pay down their principal, they will surface again.
A drag on recovery
That said, Humphrey believes negative equity will remain an issue for the housing market as a whole, and poses a risk to any recovery. Not only does negative equity tie many to their homes, by making homeowners unable to move when they may want to, but if economic growth slows and unemployment rises, more homeowners will be unable to make timely mortgage payments, increasing delinquency rates and eventually foreclosures.
On a state level, Nevada has the highest percentage of negative equity, with 66.9 percent of all homeowners with mortgages underwater. Arizona is right behind (52.3 percent), followed by Georgia (46.8 percent), Florida (46.3 percent) and Michigan (41.7 percent).
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