More than 6.9 million U.S. residential properties were classified as seriously underwater at the end of the third quarter, down more than 500,000 from the second quarter and down more than 1.2 million compared with Q3 2014, according to RealtyTrac, a national source for housing data. The total represents 12.7% of all properties with a mortgage."Seriously underwater" is defined as when the combined loan amount secured by the property is at least 25% higher than the property’s estimated market value. 

A surge in home sales volume and prices in the second and third quarters account for the dramatic drop in seriously underwater homeowners. The Q3 numbers fell from 7.4 million homes, representing 13.3% of all homes with a mortgage, in Q2 and marked the lowest level both for total mortgages and share of mortgages since RealtyTrac began tracking underwater data in Q1 2012.  The number and share of seriously underwater homes peaked in Q2 2012 at 12.8 million homes representing 28.6% of all homes with a mortgage."After a lull late last year and early this year, home sales volume and average sales prices picked up dramatically again in the second and third quarters of this year, resulting in a substantial drop in seriously underwater homeowners," said Daren Blomquist, vice president at RealtyTrac. 

There were 10.5 million equity rich (at least 50% equity) residential properties at the end of the third quarter, down nearly a half million from the second quarter. The number represents 19.2% of all properties with a mortgage and indicates more homeowners with equity are leveraging equity with a refinance, a move-up sale and purchase or by cashing out of the housing market completely. The Q3 equity rich numbers dropped from 10.9 million in the second quarter and from 10.8 million in the third quarter of 2014.   "The number and share of equity rich homeowners also dropped dramatically between the second and third quarters, continuing a trend from the previous two quarters, evidence that more homeowners in this category are leveraging their equity through a refinance, move-up sale or by completely cashing out of the housing market," Blomquist said.

The share of distressed properties - those in some stage of foreclosure - that were underwater at the end of the third quarter were also at the lowest level since Q1 2012. As of the end of the third quarter, 33.4% of distressed properties were seriously underwater, down 1 percentage point from the previous quarter and down 5.5 percentage points year-over-year.

Conversely, the share of properties in foreclosure with positive equity increased to 43.4% in the third quarter, up slightly from 42.4% in the second quarter and up from 38.5% in Q3 2014.Among properties with an estimated market value under $200,000, 20.2% were seriously underwater, while only 5% of properties with a value exceeding $750,000 were seriously underwater. On the other end of the spectrum, 14.3% of properties valued under $200,000 were equity rich, while 38% of properties valued more than $750,000 were equity rich.

Among residential properties with a mortgage that have been owned between five and 10 years, 17.2% are seriously underwater - the highest share of any years owned range analyzed by RealtyTrac.On the other end of the spectrum, 39.3% of homes owned 20 years or more are equity rich - the highest equity rich share of any years owned range analyzed by RealtyTrac. 

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