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According to a new report, over 11 million homeowners owe more than their homes are worth. This number rose at the end of last year, further distressing an already weak housing market. The number of underwater mortgages had risen during the previous three quarters of 2010, but that was likely because many homes had already fallen into foreclosure.
Approximately 11.1 million households, or 23.1 percent of all mortgaged homes, were underwater in the October-December quarter, according to report released Tuesday by housing data firm CoreLogic. That represents an increase from 22.5 percent, or 10.8 million households, in the July-September quarter.
When home prices fall, underwater mortgages typically rise. Home prices in December hit their lowest point since the housing bust in 11 of 20 major U.S. metro areas. In a healthy housing market, about 5 percent of homeowners are underwater.
Roughly two-thirds of homeowners in Nevada with a mortgage had negative home equity, the worst in the country. Arizona, Florida, Michigan and California were next, with up to 50 percent of homeowners with mortgages in those states underwater. Oklahoma had the smallest percentage of underwater homeowners in the October-December quarter, at 5.8 percent. Only nine states recorded percentages less than 10 percent.
In addition to the 11 million mortgages underwater, another 2.4 million homeowners are getting close to being underwater as well. When a homeowner owes more than the home is worth, they cannot qualify for refinancing. Although home prices began to stabilize last year, they have begun to fall again because of ongoing unemployment and record number of foreclosures.
Underwater mortgages also slow down home sales. Homeowners often don’t want to take a loss or get the bank to agree to a short sale, so they may hold onto a property that otherwise they would sell. Home sales have been weaker in areas where there are a large number of homeowners with negative equity. The total amount of negative equity increased to $751 billion nationwide, up from $744 billion in the previous quarter.