Though house prices continue to fall and foreclosures dominate the market, the number of Minnesotans who owe more than their house is worth has remained stable and is far below the national average, according to a first-quarter report released today by CoreLogic. The group said that 16.1 percent of all Minnesotans are underwater, down slightly from the first quarter 2010 when the number stood at 16.7 percent. Nationwide 22.7 percent of all homeowners were underwater, down from 23.7 percent in 2010, figures that were heavily weighted by a handful of states, including Nevada (63 percent), Arizona (50 percent) and Florida (46 percent). Excluding the states with the five highest percentages the national average was 16 percent - almost exactly in line with the number of Minnesotans who are underwater.

Homeowners go "upside down' on their mortgage either when the value of their house declines, or when they borrow against the equity in their house, increasing their debt. Because house prices have been falling and lenders have been leary of extending credit to those with little equity in their house, most people who are now underwater on their mortgage are in that position because of falling prices.

And prices have continued falling. Zillow said Tuesday that home prices in April in the Twin Cities metro fell 15.4 percent compared with last year at this time, but were virtually stable compared with March. The report also said that 42 percent of all homes sold for a loss, up 6.6 percent from last year, a trend that suggests that buyers are making low-ball offers.

While the average negative equity borrower owed about $65,000, there were wide disparities state-by-state. New Yorkers owed the most: they were upside down by an average of $129,000. Minnesotans owed an average of $38,000, the third lowest in the nation.

What's more interesting - or revealing - about the state of the market is the disparity between those who had a second mortgage or home equity loan. Almost 40 percent of those folks were underwater, compared with just 18 percent of borrowers with no home equity loan.

Are these signs of stability? Well, maybe. These negative equity numbers have a relationship with foreclosure rates. For example, as homeowners who are underwater lose their homes to foreclosure, the overall number of mortgages that are upside down declines. In recent months foreclosure rates have remained somewhat stable, suggesting that the declines in the number of homeowners who are underwater on their mortgage might also be easing somewhat as price declines slow. And here's anothe factor to consider: Employment is just as important as the amount of equity a homeowner might/might not have when it comes to assessing the risk of default, so the jobs picture going forward will be very telling.

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