RealtyTrac's U.S. Home Equity & Underwater Report for the second quarter shows that 9.1 million U.S. residential properties were seriously underwater — where the combined loan amount secured by the property is at least 25% higher than the property’s estimated market value. The number represents 17% of all properties with a mortgage.

The second quarter saw a slight decrease in seriously underwater homes - specifically 17.2% versus 17.4% in the first quarter.

The number is the lowest mark since RealtyTrac began reporting negative equity in the first quarter of 2012. The recent peak in negative equity was the second quarter of 2012, when 12.8 million U.S. residential properties, representing 29% of all properties with a mortgage, were seriously underwater.

The universe of equity-rich properties — those with at least 50% equity — held steady from the first quarter at 9.9 million in the second quarter, representing 18.8% of all properties with a mortgage.

Another 8.8 million properties were on the verge of resurfacing equity in the second quarter, with between 10% negative equity and 10% positive equity, representing 17% of all properties with a mortgage, up from 8.5 million representing 16% of all properties with a mortgage in the first quarter.

Fewer distressed properties had negative equity in the second quarter, with 44% of all properties in the foreclosure process seriously underwater — down from 45% in the first quarter and down from 57% in the second quarter of 2013. The share of foreclosures with positive equity dropped to 34% in the second quarter, down from 35% in the first quarter. Top states for foreclosures with equity include Colorado, Texas, Oklahoma, Hawaii and Louisiana.

"Home price appreciation has slowed in the last few months in many of the markets with the most underwater homes, slowing the pace at which homeowners are recovering equity lost during the Great Recession," said Daren Blomquist, vice president at RealtyTrac. "For instance, annual home price appreciation in California was at 16% in May compared to a high of 31% in July and August of 2013. In Arizona, home price appreciation has slowed to 6% annually compared to a high of 24% last year. In addition many of the properties that are seriously underwater are in a deep negative equity hole that will take some time to dig out of. The average loan-to-value on the 9.1 million homes seriously underwater was 133%, and the average loan-to-value on the homes in foreclosure that are seriously underwater was 134%."

Markets with the most negative equity
States with the highest percentage of residential properties seriously underwater in the second quarter were Nevada (32%), Florida (30%), Illinois (30%), Rhode Island (29%) and Michigan (27%).

Major metropolitan statistical areas (population 500,000 or more) with the highest percentage of residential properties seriously underwater were Lakeland, Fla. (37%), Las Vegas (35%), Cleveland (35%) and Palm Bay-Melbourne-Titusville, Fla. (32%).

Markets with the most resurfacing equity
Major metro areas with the highest percentage of resurfacing equity - between negative 10% and positive 10% – included Colorado Springs, Col., (28%), Albuquerque N.M. (22%), Lancaster, Pa. (22%), El Paso, Texas (22%), Salt Lake City (22%) and Worcester, Mass. (22%).

Markets with the most equity-rich properties
Major metro areas with the highest percentage of equity rich properties - those with at least 50 percent equity - were San Francisco (37 percent), Honolulu (36 percent), Los Angeles (32 percent), New York (29 percent), Oxnard (28 percent), and San Diego (28 percent).

Report methodology
RealtyTrac's report provides counts of residential properties based on several categories of equity — or loan to value (LTV) — at the state, metro and county level, along with the percentage of total residential properties with a mortgage that each equity category represents.  

The firm uses the following definitions:

Seriously Underwater: Loan to value ratio of 125% or above, meaning the homeowner owed at least 25% more than the estimated market value of the property.

Equity Rich: Loan to value ratio of 50% or lower, meaning the homeowner had at least 50 percent equity.

Foreclosures w/Equity: Properties in some stage of the foreclosure process (default or scheduled for auction, not including bank-owned) where the loan to value ratio was 100% or lower.

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