Taken from the article in the Palm Beach Post.

No need to put a fright mask on these numbers: Nearly one in three Florida mortgage borrowers owed more on their loans than their homes were worth in the third quarter, according to a report issued Friday.

Fully 1.2 million of Florida’s 4.2 million mortgages – 29.2 percent – were upside down, said First American CoreLogic of Santa Ana, Calif.

Troubled borrowers

Florida ranks third in the nation in percentage of homeowners who owe more than their homes are worth:

1. Nevada: 47.8%

2. Michigan: 38.6%

3. Florida: 29.2%

3. Arizona: 29.2%

5. California: 27.4%

Source: First American CoreLogic
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If home prices dip another 5 percent, nearly 200,000 more Florida borrowers would slip under water.

Further price declines seem a near certainty as foreclosures soar and job losses mount.

Moody’s Economy.com forecasts a 10 percent price decline in Palm Beach County, while Veros Real Estate Solutions predicts a 15 percent drop for Palm Beach County and the Treasure Coast in the coming year.

It all adds up to a gruesome picture. With so many homeowners under water and the job market weakening, foreclosures are likely to rise, said Sam Khater, senior economist at First American CoreLogic.

“There’s a large percentage of very vulnerable homeowners,” Khater said. “If they lose their job, if they run into some kind of health problem, or divorce, they might just walk away.”

Most homeowners will hunker down and continue to make mortgage payments in spite of the downturn, Khater said. But negative equity adds a toxic new ingredient to the housing market witches’ brew.

“We’ve created an entire class of homeowner that is very sensitive to price changes,” he said.

During the height of the real estate bubble, buyers routinely made small down payments and took adjustable-rate mortgages. And many homeowners refinanced to take equity out of their homes to fuel spending. That worked when prices were rising.

Now, though, the nightmarish rise of negative equity is sapping wealth and sending Florida’s economy into a tailspin. Palm Beach County’s jobless rate has doubled in the past two years, while St. Lucie County unemployment has hit double digits.

Florida trailed only Nevada and Michigan in the percentage of borrowers with negative equity, First American CoreLogic said.

First American CoreLogic said more than 7.5 million properties nationwide have negative equity and an additional 2.1 million would likely follow should home prices decline another 5 percent.

“The results show what we’ve been talking about anecdotally,” said Jack McCabe, a real estate analyst in Deerfield Beach. “A lot of people are upside down, and a lot of people took out highly volatile mortgages.”

New York had the lowest share of homes with negative equity at 7 percent, followed by Hawaii at 8 percent, Pennsylvania at 9 percent and Montana at 10 percent, according to the report.