Negative equity mortgages continued to decline in 2012’s second quarter, as more than one million homeowners achieved positive equity on their mortgages.

By Peter Ricci

Negative equity mortgages declined in the second quarter, falling from 11.4 million properties to 10.8 million, according to the latest data from CoreLogic.

Additionally, 1.8 million borrowers are only 5 percent underwater on their mortgages, and if recent home price increasescontinue, chances are they could move out of their negative equity position. Since the start of 2012, more than 1.3 million borrowers have moved in to positive equity.

Negative Equity Mortgages – Gradually Improving

There was quite a bit of data in CoreLogic’s latest report, and it all pointed to a gradually improving housing market:

• Negative equity and near-negative equity mortgages accounted for 27 percent of all residential properties with a mortgage in 2012’s second quarter, down from 28.5 percent at the end of the first quarter. Largely driven by the increases in home prices, total negative equity has declined by more than $2 billion in 2012.
• For Illinois specifically, 576,822 of the state’s 2,236,589 mortgages are in negative equity, which is a 25.8 percent share. (For Florida specifically, 1,804,276 of the state’s 4,222,134 mortgages are in negative equity, which is a 42.7 percent share.)(For Texas specifically, 299,624 of the state’s 3,388,595 mortgages are in negative equity, an 8.8 percent share that is among the lowest in the nation.)
• The vast majority of underwater borrowers continue to pay their mortgages, and in the second quarter, 84.9 percent were current on their loans, up from 84.8 percent in the first quarter.
• Most negative equity mortgages are concentrated in the lower end of the housing market, with 32 percent of homes valued less than $200,000 being in negative equity (compared to just 17 percent for homes valued greater than $200,000).

Home Price Trends – The Antidote to Negative Equity?

Mark Fleming, the chief economist for CoreLogic, highlighted the importance of rising home prices in the falling number of negative equity mortgages.

“The level of negative equity continues to improve with more than 1.3 million households regaining a positive equity position since the beginning of the year,” Fleming said. “Surging home prices this spring and summer, lower levels of inventory, and declining REO sale shares are all contributing to the nascent housing recovery and declining negative equity.”

And indeed, home prices have been increasing across the board, and not just according to CoreLogic’s measures. Measures from LPS, Trulia, and most important, the Case-Shiller, have all shown rising home prices.