Negative equity gains and losses

30% of California homeowners owed more on their mortgages in the third quarter of 2011 than their homes were worth, a condition referred to as negative equityThe condition of a property owner owing more on a mortgage than the current fair market value of the encumbered property.. This consists of 2,030,292 homes statewide. [Data courtesy of Corelogic, a data analytics company.]

While still high, these numbers represent a downward trend from one year ago, when 32% of mortgages were in negative equityThe condition of a property owner owing more on a mortgage than the current fair market value of the encumbered property. territory. The decline suggests that principal payments on existing mortgages rose more quickly than housing prices dropped over the last year. [For more on current pricing, see the first tuesday Market Chart, California tiered home pricing.]

An additional 4.6% of mortgages were classified as “near negative equityThe condition of a property owner owing more on a mortgage than the current fair market value of the encumbered property.,” indicating that their cumulative debt was within 5% of reaching a negative equityThe condition of a property owner owing more on a mortgage than the current fair market value of the encumbered property. position. Being at or near negative equityThe condition of a property owner owing more on a mortgage than the current fair market value of the encumbered property. is a precarious position for homeowners, and greatly increases the likelihood of a mortgage default. Worse, negative equityThe condition of a property owner owing more on a mortgage than the current fair market value of the encumbered property. homeowners cannot sell their homes without either a discount or shortsale approval from the lender — both of which are rare.[For more on the causes and effects of negative equityThe condition of a property owner owing more on a mortgage than the current fair market value of the encumbered property., see the February 2011 first tuesday article, The negative equityThe condition of a property owner owing more on a mortgage than the current fair market value of the encumbered property. plague: California’s home insolvency crisis; for more information on shortsales, see the September 2011 article, How to facilitate a shortsale transaction.]