1/3rd Of U.S. Homeowner Mortgages Are Under Water

Zillow has issued a press release that has some startling information in it concerning the health of the U.S. mortgage market. We knew things were bad, now we get an idea of just how bad.

U.S. home values in the second quarter posted the largest year-over-year decline in the past 12 years(1), dropping 9.9 percent from the year-ago quarter and 1.7 percent from the first quarter to a U.S. Zillow Home Value Index (HVI) of $206,919(2), according to the Q2 Zillow Real Estate Market Reports(3) released today. The median U.S. home value has not been this low since the fourth quarter of 2004, leaving nearly one-third (29.1%) of homeowners who purchased since 2003 with negative equity(4).

The problem seems easy enough to understand. As home values have plummeted, many homeowners who have mortgages for the former value now find their mortgage imperiled. They're 'under water.'

Not surprisingly, homeowners who have experienced the most significant value declines are at most risk of being underwater on their mortgages, meaning they owe more than their home is currently worth. Nationwide, for those who purchased their home since the beginning of 2003, nearly one in three (29.1%) now have negative equity. The highest rates of negative equity are among those who purchased in 2006, when most markets peaked, as nearly half (45%) of those buyers across the U.S. now face negative equity after placing a median down payment of 10 percent. The rate is nearly double for those in the Stockton MSA where nearly every homeowner (95%) who bought in 2006 with a median down payment of zero is underwater

This is an unprecedented situation for homeowners to be in. The Senate recently began a bailout of the mortgage industry, but it's too early to see what affect it's having on the market at large.