Seriously underwater properties, which are homes where the combined loan amount secured by the property is at least 25 percent higher than the property's estimated market value, represented 17 percent of all properties with a mortgage.
Underwater properties in Q1 2014 decreased to the lowest level since RealtyTrac began reporting data in Q1 2012, and decreased from the previous quarter, Q4 2013, when 9.3 million properties were underwater.
"U.S. homeowners are continuing to recover equity lost during the Great Recession, but the pace of that recovering equity slowed in the first quarter, corresponding to slowing home price appreciation," said Daren Blomquist, VP at RealtyTrac. "Slower price appreciation means the 9 million homeowners seriously underwater could still have a long road back to positive equity."
Properties with positive equity increased, reflecting further positive shifts in the housing landscape.
"The universe of equity-rich properties—those with at least 50 percent equity—grew to 9.9 million representing 19 percent of all properties with a mortgage in the first quarter, up from 9.1 million representing 18 percent of all properties with a mortgage in the fourth quarter of 2013," the report said.
Properties on the cusp of resurfacing, characterized by residential properties between 10 percent negative equity and 10 percent positive equity, increased to 8.5 million for the quarter, representing 16 percent of homes with a mortgage. Properties on the verge of recovery in Q4 2013 were 8.3 million, which was 17 percent of all properties with a mortgage.
Fewer distressed properties had negative equity as well, with 45 percent of all properties in the foreclosure process underwater. Foreclosed homes with negative equity fell from 48 percent in the last quarter of 2013, and were down from 58 percent in the first quarter of 2013.
"The relatively high percentage of foreclosures with equity is surprising to many because it would seem homeowners with equity could easily avoid foreclosure by leveraging that equity by refinancing or with an equity sale of the home," Blomquist noted. "But many distressed homeowners with equity may not realize they have equity and in some cases have vacated the property already, assuming that foreclosure is inevitable."
Homes with positive equity increased to 35 percent in Q1 2014, up from 31 percent in Q4 2013 and up from 24 percent in Q3 of 2013.
States with the highest percentage of residential properties seriously underwater in the first quarter were Nevada (34 percent), Florida (31 percent), Illinois (30 percent), Michigan (29 percent), and Ohio (27 percent).
Major metro areas with the highest percentage of resurfacing equity were Louisville, Kentucky (37 percent); Columbia, South Carolina (28 percent); Colorado Springs, Colorado (28 percent); Little Rock, Arkansas (28 percent); and Tulsa, Oklahoma (27 percent).
Major metro areas with more than 50 percent of properties in foreclosure with equity included Denver (64 percent), Boston (58 percent), Minneapolis (58 percent), Houston (54 percent), and Washington, D.C. (52 percent).