Falling home prices at the turn of the year pushed more borrowers into a negative equity position, meaning they owe more on their mortgages than their homes are worth.
In Q4, 23 percent of borrowers nationwide, or 11.1 million, were holding "underwater" mortgages; that's a collective $750 billion of negative equity, according to the latest survey from CoreLogic. That's up from 22.5 percent, or 10.8 million, in Q3, again, thanks to falling home prices. To make matters worse, 2.4 million borrowers have less than 5 percent equity in their homes, deemed as "near-negative" equity.
Of course negative equity is concentrated in the hardest hit states: Nevada (65 percent), Arizona (51 percent), Florida (47 percent), Michigan (36 percent) and California (32 percent). This as the consensus among housing watchers is that home prices will fall another 5 to 10 percent this year before slowly climbing back. That means negative equity will climb another ten percentage points.
So why should we care if the bulk of these underwater borrowers can still make their monthly mortgage payments? "Negative equity holds millions of borrowers captive in their homes, unable to move or sell their properties," notes CoreLogic's chief economist Mark Fleming. "Until the high level of negative equity begins to recede, the housing and mortgage finance markets will remain very sluggish."