The high percentage of underwater homes has many analysts concerned that they will lead to more foreclosures in the U.S.
Miami-Fort Lauderdale home values saw a year-over-year decline of 15.2 percent, while values in Phoenix, Arizona, fell by 11.8 percent. Despite the high percentage of negative equity, the second-quarter rate – 21.5 percent – is a decline from the first-quarter figure of underwater mortgages, which stood at 23.3 percent. However, some areas that benefit from both state and federal tax credits have seen home values increase, the report shows. California, for example, saw values rise by 27.8 percent, marking five consecutive quarterly increases.
Underwater mortgages are examined closely by economists, because they are strong indicators of a likely foreclosure. In addition to not being able to afford mortgage payments, some homeowners who are unable to modify their loans are strategically defaulting on their mortgages – that is, walking away from their homes and letting the bank repossess the property.
“It is the paramount challenge facing housing markets,” Zillow?s chief economist Stan Humphries told Reuters. “We already have had record levels of foreclosure and, combined with high unemployment, negative equity is very toxic to the market.”
Though fewer Americans are strategically defaulting on their mortgage loans, foreclosure rates continue to increase with RealtyTrac reporting a first-quarter foreclosure rate of 1.65 million. Analysts project that the number of mortgage defaults, repossessions and scheduled auctions are likely to reach 3 million by the end of the year.
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