6.3 Million US Homes Are Still Underwater

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Las Vegas is No. 1, but not in a good way. Sin City tops the list of cities with the largest percentage of underwater homes in the country, Time says.

Underwater is when you owe more on the home than it’s worth. According to The Associated Press, nearly 1 in 3 homes in Vegas is underwater. While that sounds bad, it’s a marked improvement from last year, when nearly half of Vegas homeowners owed more than their homes were worth.

Driven by an increase in home prices, the number of underwater homes in the U.S. has decreased by half since late 2009, MarketWatch said. In 2013, more than 3.5 million homes actually regained equity.

Although many underwater homes are finally coming up for air, 6.3 million remain underwater. According to NBC News, more-affordable homes are three times more likely than expensive homes to be underwater:

“The unfortunate reality is that housing markets look to be swimming with underwater borrowers for years to come,” said Zillow chief economist Stan Humphries. “It’s hard to overstate just how much of a drag on the housing market negative equity really is, especially at the lower end of the market, which represents those homes typically most affordable for first-time buyers. Negative equity constrains inventory, which helps drive home values higher, which in turn makes those homes that are available that much less affordable.”

Thirty percent of homes in the bottom tier ($98,400 and under) are underwater. In comparison, about 18.1 percent of the middle tier ($90,300 to $306,700) and 10.7 percent of the top tier ($306,700 and up) are in negative equity.

Last week we discussed the trend for contractors to build bigger, more expensive homes. That, coupled with millions of underwater homes, creates a volatile housing market, which effectively prices out many consumers. According to NBC:

For the housing recovery to get moving again, first-time homebuyers need to step in where investors are stepping out. In order for them to get in, they need to find affordable homes, and that is where supply is sorely lacking. Home builders are focusing on larger, higher-priced homes, because that is currently where the buyers are.

Unfortunately, some areas of the U.S. housing market aren’t recovering as well as others. Nevada, Florida, Mississippi, Arizona and Illinois are home to almost one-third of all underwater homes in the U.S.

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