SAN FRANCISCO - The number of U.S. homes with negative equity shrank during the third quarter, but price declines may threaten this improvement, real-estate data company CoreLogic Inc. said Monday.
CoreLogic reported that 10.8 million properties, or 22.5 percent of all residences with mortgages, were in negative equity at the end of the third quarter, down slightly from 11 million, or 23 percent, in the second quarter.
The recent decline in negative equity was mainly due to foreclosures of severely underwater homes, rather than an increase in house prices, CoreLogic noted.
This was the third consecutive quarterly decline in negative equity for residential properties. In the first nine months of 2010, the number of borrowers with negative equity declined by more than 500,000, CoreLogic said.
Negative equity, often referred to as "underwater" or "upside down," means that borrowers owe more on their mortgages than their homes are worth. The trend is closely watched by investors because underwater homeowners are more likely to default on their mortgages.
The aggregate level of negative equity declined to $744 billion in third quarter. That's down 3 percent from the second quarter and 7 percent from the end of 2009, when it stood at $800 billion, CoreLogic said.
"Negative equity is a primary factor holding back the housing market and broader economy," Mark Fleming, chief economist with CoreLogic, said in a statement.
"The good news is that negative equity is slowly declining," he added.
