A smaller percentage of U.S. homeowners had so-called "underwater mortgages" in the second quarter as more homes entered the foreclosure process even as price declines slowed, real estate Web site Zillow.com reported today.
Underwater mortgages refers to when the amount owed on the mortgage exceeds the home's value. A drop in the number, despite how it occurred, is still considered a positive for the housing market because it could portend fewer defaults and foreclosures down the road.
The percentage of American single-family homes with mortgages in negative equity fell to 21.5% in the second quarter from 23.3% in the first quarter and 23% a year ago, according to the Zillow Real Estate Market Reports.
Underwater mortgages are one of the biggest banes for homeowners because negative equity leaves many unqualified for home loan refinancing and prevents some from selling. Through the foreclosure process, negative equity is squashed, but at the cost of a homeowner losing their home.
In the second quarter, U.S. home values were down 3.2% year-over-year and down 0.6% quarter-over-quarter, to $182,500, according to the Zillow Home Value Index. It was the 14th consecutive quarter of year-over-year declines. The national rate of decline decelerated from the first quarter, marking the second consecutive quarter of slowing declines.
Home sales have fallen since the expiration of government tax credits at the end of April. To take advantage of them, buyers had to sign purchase contracts by April 30. Contracts originally had to close by June 30, but that was extended by three months.
Foreclosures again reached a new peak in June, with more than one out of every 1,000, or 0.11%, U.S. homes being foreclosed upon during the month - the highest since Zillow began recording national foreclosure data in 2000. Also, for more than one-fourth, or 26%, of home sales nationwide, the home was sold for less than what the seller originally paid.
Foreclosure re-sales fell in June, making up 16.9% of all U.S. home sales during the month, down from a 2010 high of 19.8% in February.
In California, home values in 20 of the 26 California markets tracked by Zillow showed quarter-over-quarter increases in home values, and 10 showed year-over-year increases. California markets benefited from federal and state home buyer tax credits and these double tax credits stimulated housing demand there and are partly responsible for the rapid - and possibly unsustainable - rates of appreciation in many markets across the state.
