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However 27% of homeowners with mortgages owe more than their homes are worth. That’s up from 23.2% a quarter earlier. That will surely lead to higher foreclosure rates soon. That’s because being underwater is second only to unaffordable payments in leading to foreclosure, according to Zillow’s chief economist, Stan Humphries.

Additionally, the report found that more than one-third of all homes were sold at a loss in December. That trend has been on a steady uptick for the past six months, as homeowners try to find ways around foreclosure or out from under their homes.

The so-called “robo-signing” events of the fall also forced the number of underwater mortgages higher.

When banks’ foreclosure paperwork came under scrutiny, many halted all repossessions until they could straighten things out. With foreclosures no longer being cleaned out of the system, more homes stayed underwater rather than moving on to foreclosure. 

Portion of article by: Ken Calhoon, Real Estate Broker, Placerville, California

U.S. homebuyers are less likely to purchase a foreclosed property today than they were a year ago, according to a new survey conducted by Trulia and RealtyTrac. Some 45 percent of U.S. homebuyers say they are at least somewhat likely to purchase a foreclosure today compared with 55 percent who said the same a year ago.

Only 1 percent of homeowners with a mortgage say walking away from their home would be their first option if they are unable to pay their mortgage, while 59 percent say they would not consider walking away no matter how much their mortgage was underwater. More than two-thirds of homeowners (69 percent) say modifying their loan terms is their first choice if they aren’t able to pay their mortgage.

The survey also finds that fewer homeowners have a negative view toward foreclosure properties this year (78 percent) compared to last year (85 percent). Homeowners who believe there are negative aspects to purchasing a foreclosed home say they are most concerned that there will be hidden costs (68 percent), that the process is risky (49 percent) and that the home could lose value (35 percent).