by Calculated Risk on 8/29/2013 10:53:00 AM

Note: CoreLogic will release their Q2 negative equity report in the next couple of weeks. For Q1, CoreLogic reported there were 9.7 million properties with negative equity, and that will be down further in Q2.

From Zillow: Negative Equity Rate Falls for 5th Straight Quarter in Q2

According to the second quarter Zillow Negative Equity Report, the national negative equity rate continued to fall in the second quarter, dropping to 23.8% of all homeowners with a mortgage from 25.4% in the first quarter of 2013. The negative equity rate has been continually falling for the past five quarters, with the second quarter of 2013 being down significantly from the second quarter of 2012 at 30.9% – a decrease of more than 7 percentage points. In the second quarter of 2013, more than 805,000 American homeowners were freed from negative equity. However, more than 12 million homeowners with a mortgage remain underwater ... Of all homeowners – roughly one-third of homeowners do not have a mortgage and own their homes free and clear – 16.7% are underwater.
emphasis added

The following graph from Zillow shows negative equity by Loan-to-Value (LTV) in Q2 2013 compared to Q2 2012.

Click on graph for larger image.

From Zillow:

Figure 3 shows the loan-to-value (LTV) distribution for homeowners with a mortgage in the nation in 2013 Q2 vs. 2012 Q2. Even though many homeowners are still underwater and haven’t crossed the 100% LTV threshold to enter into positive equity, they are moving in the right direction. ... On average, a U.S. homeowner in negative equity owes $74,700 more than what their house is worth, or 42.3% more than the home’s value.  While roughly a quarter of homeowners with a mortgage are underwater, 92% of these homeowners are current on their mortgages and continue to make payments.

Almost half of the borrowers with negative equity have a LTV of 100% to 120% (the light red columns). Most of these borrowers are current on their mortgages - and they have probably either refinanced with HARP or the loans are well seasoned (most of these properties were purchased in the 2004 through 2006 period, so borrowers have been current for eight years or so). In a few years, these borrowers will have positive equity.

The key concern is all those borrowers with LTVs above 140% (about 8.7% of properties with a mortgage according to Zillow). It will take many years to return to positive equity ... and a large percentage of these properties will eventually be distressed sales (short sales or foreclosures).