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Millions of homeowners still underwater, despite price gains

(MoneyWatch) About 2.5 million more homeowners have surfaced from underwater mortgages in the second quarter of the year and finally have some positive equity in their homes.

But a far greater number, 7.1 million, are still underwater -- that's nearly 15 percent of all homeowners, according to CoreLogic, a residential property information and analytics firm.

Some still have a long way to go to fully recover, if they ever do.

Underwater homeowners owe more on their mortgages than their homes are worth. When the housing bubble burst, home values dropped so hard and so fast that some homeowners lost upwards of 60 percent of their home's value in just a few years.

Now, even though home prices have been recovering at a fast clip -- depending on the market it could be anywhere from nearly nothing to more than 30 percent growth in home prices -- that's still not enough to pump some positive equity into some of these homes.

As the chart from CoreLogic shows, one of the largest groups of homeowners with negative equity owes more than 125 percent of the value of their home to the bank.


Despite the gains in positive equity so far this year, it's unlikely that prices will recover much more until next year when the spring and summer-buying season comes around again.

"In just the first half of 2013, almost three and a half million homeowners have returned to positive equity, but the pace of improvement will likely slow as price appreciation moderates in the second half," said Mark Fleming, chief economist for CoreLogic.

American homeowners as a whole are missing $428 billion of equity that still has to be recovered. While that number is down 25 percent from $576 billion in the first quarter, it's still a large, looming figure.

What's worse, of the 41.5 million homeowners who currently have some kind of equity in their homes, 10.3 million have less than 20 percent and 1.7 million have less than 5 percent. While some of these numbers account for homeowners who recently purchased homes with a down payment under 20 percent -- an FHA loan only requires 3.5 percent -- a large bulk of them are homeowners who recently crossed the threshold into positive equity, but still need more equity to move on.

These folks, known as "under-equitied" borrowers, may have a more difficult time obtaining loans to finance a new home, so like their counterparts still in negative equity, they may be stuck in their current homes until the value goes up. They're also at risk of falling back underwater should prices drop again.

Nevada still has the highest percentage of homeowners underwater, due to plummeting home values in Las Vegas during the housing crisis. In the Silver State, 36.4 percent of homeowners are still struggling with negative equity, followed by 31.5 percent in Florida, 24.7 percent in Arizona, 22.5 percent in Michigan and 20.7 percent in Georgia.

Most of those states' high levels of negative equity are ramped up due to specific markets that really fell off a cliff, like the Miami and the Tampa Bay areas in Florida, as well as the Phoenix, Detroit and Atlanta markets respectively.