Negative equity swells in US

By Dan Levy  |   2008-11-1  |     NEWSPAPER EDITION

ALMOST 20 percent of United States mortgage borrowers owed more on their loans in the third quarter than their house was worth as foreclosures depressed prices and the economy weakened, according to First American CoreLogic, a property data company.

More than 7.5 million properties already have negative equity and another 2.1 million will follow should home prices decline another 5 percent, First American said in a report yesterday. Six states account for almost 60 percent of homes with negative equity, led by Nevada and Michigan.

"As long as job losses continue and people face resets on their mortgages, the housing market will be under severe distress," Sam Khater, a senior economist at First American said in an interview with Bloomberg News. "We've created an entire class of homeowner that is very sensitive to price changes."

Home prices fell in August in all 20 metropolitan areas measured by the S&P/Case-Shiller home-price index, which dropped 16.6 percent from a year earlier and has fallen every month since January 2007.

US foreclosure filings rose to a record in the third quarter, and will probably increase as the economy worsens and the availability of financing shrinks, RealtyTrac, a seller of housing-default data, reported last Wednesday.

The number of houses with loans higher than the property's value may increase to almost 25 percent should prices keep falling, First American said.

The economy suffered its biggest decline since 2001 in the third quarter, ushering in what may be the worst recession in a quarter of a century.