Housing Still Struggling as Underwater Mortgages Rise, Report Says

Housing Still Struggling as Underwater Mortgages Rise, Report Says

NEW YORK (MainStreet) -- Negative equity – the accounting term used to describe homes that are underwater on their mortgages – remains a burr under the saddle of the country's ailing housing market.

As long as American homeowners are plagued by negative equity, those affected are less likely to want to invest in their properties and are more likely to throw up their hands and give up as their home slides into foreclosure.

It’s a vicious cycle, and one new report says the problem is getting worse – for the short-term, at least.

Housing monitoring website Zillow has released its Q3 Real Estate Market Report, which says negative equity in U.S. homes actually rose in the third quarter of 2011. The report states that the rate of underwater mortgages increased to 28.6% – up from 26.8% in the second quarter and 28.4% in the first quarter of 2011.

Zillow says that negative equity, along with chronic high unemployment and “fragile” consumer confidence, continue to pose a huge threat to housing market stability. But the news could be better next year, as Zillow also notes that the rate of home-value declines is moderating.

“While we still have a ways to go in terms of home value depreciation, the pace at which home values are falling has declined considerably during the course of this year,” noted Stan Humphries, Zillow chief economist, in a statement. “This slower pace signals that a stabilization is on the horizon.”

Zillow also reports that U.S. home values were “essentially flat” from the second to third quarter of 2011, sliding just 0.2%. But year-to-year, home values were down by 4.4%, and Zillow notes that the “worst of the housing recession is behind us.” In fact, Zillow expects the housing market – now in a four-year slump – to finally bottom out in 2012.