Bloomberg News

By Prashant Gopal - Nov 7, 2011 9:01 PM PT

The number of U.S. homeowners who owe more than their properties are worth climbed in the third quarter as lenders repossessed fewer houses, Zillow Inc. said.

The share of borrowers with negative equity rose to 28.6 percent, up from 26.8 percent in the second quarter and 23.2 percent a year earlier, the real estate data provider said today. Last quarter’s portion was the biggest since Seattle-based Zillow began tracking the measure in the first quarter of 2009, when 22.3 percent of households were underwater.

The number increased because fewer delinquent properties are being taken over by banks, said Stan Humphries, Zillow’s chief economist. Banks have slowed the pace of seizures as they negotiate with state attorneys general probing the mishandling of foreclosure documents.

“We still have very high negative equity rates,” Humphries said in an e-mail. “That’s putting extreme pressure on households because temporary job losses translate into foreclosures at much higher rates when the household is in negative equity.”

Foreclosure filings in the U.S. declined 34 percent in the third quarter from a year earlier, RealtyTrac Inc. said Oct. 13.

Lenders are getting more aggressive with severely delinquent loans, Fitch Ratings said in a report yesterday. The rate of foreclosure starts on loans that were at least 10 months delinquent climbed to 12.3 percent in October from 6.7 percent in May, Jonathan Hoke, a Fitch analyst based in New York, said in a telephone interview.

On US totals, if you figure average house prices use conforming loan balances, then a repeat buyer has to have roughly 10 percent down to buy in addition to the 6 percent Realtor fee to sell. Thus, the effective negative equity target would be 85%. You also have to factor in secondary financing, which most measures leave out.

Based on that, over 50 percent of all mortgaged households in the US are effectively underwater — unable to sell for enough to pay a Realtor and put a down payment on a new purchase without coming out of pocket. Because repeat buyers have always carried the market as the foundation, this is why demand has not come back. It's as if half the potential buyers in America died over a two-year period of time.

rickettyrabbit wrote:I wonder where the bottom is?

(No, not you, btb. )