Millions of American Homeowners Still Underwater

As of March 1st, there were still more than 9 million homeowners in America who were “seriously underwater” on their mortgages, meaning they owe at least 125 percent of their home’s value on the loan. While foreclosures have slowed since the recession ended, the large pool of underwater borrowers means that the market is still very much vulnerable to another foreclosure crunch. Rising values over the past two years have brought millions back above water in their loans, but there are still too many at-risk homeowners to say the market has fully recovered. According to RealtyTrac, the number of underwater homeowners peaked during the second quarter of 2012, at just under 30 percent of homes with a mortgage.

For some markets, where price gains have been the strongest, the pool of underwater borrowers has dropped to healthy levels. In San Francisco, for example, the percentage of underwater homeowners was just 4 percent in the second quarter. Markets where prices have not returned to pre-recession levels, on the other hand, are still struggling with disproportionate levels of underwater homeowners. In Stockton, California, for instance, nearly 40 percent of homeowners with a mortgage are still underwater, as prices have not fully recovered from the downturn. And Stockton is just 83 miles from San Francisco, illustrating the very uneven nature of the recovery.

The difficult trek from underwater status has been particularly difficult for homeowners in the states hit hardest by the foreclosure crisis. This includes Nevada, where 34 percent of homeowners with a mortgage are underwater, and Florida, at 31 percent. 30 percent of Illinois borrowers are still at-risk, followed by Michigan at 29 percent and Ohio at 27 percent. The trend holds true in metro areas that were the hardest hit during the crisis, led by Las Vegas, where 37 percent of homeowners were seriously underwater in March. Lakeland, Florida (36 percent of homeowners underwater), Cleveland, Ohio (35 percent) and Akron, Ohio (34 percent) are all still at risk of another foreclosure epidemic because prices have not sufficiently recovered. Homeowners in these markets are still waiting for prices to elevate enough to start building some equity, while those in places like San Francisco and Los Angeles are starting to consider selling while prices are at all-time highs.