Nineteen percent of homes with a mortgage were "deeply" underwater in December, meaning they were worth at least 25 percent less than the amount of any outstanding loans on the property. Although that represents 9.3 million residential properties, the number is down from 10.7 million in September, according to RealtyTrac.
The number of distressed homeowners has been steadily falling since a peak in May 2012, when 29 percent, or 12.8 million homes, were deeply underwater.
An injection of equity
Daren Blomquist, vice president at RealtyTrac, said in a news release that while falling home prices put millions of homeowners at risk of losing their homes to foreclosure during the housing crisis, the outlook is more positive as prices rise. "The percentage of equity-rich homeowners is nearing a tipping point that should result in a larger inventory of homes listed for sale and give the overall economy a nice shot in the arm in 2014," he added.
But millions of homeowners still live under the threat of foreclosure because they are so deep in the hole and any triggering event, such as job loss, could push them to the financial limit, he said.
Sunny, sandy and underwater
Nevada topped the list of states with the highest percentage of homeowners who are deeply underwater, at 38 percent. It was followed by Florida, 34 percent; Illinois, 32 percent; Michigan, 31 percent; Missouri, 28 percent, and Ohio, 28 percent – all states that were hit hard by the housing crisis and recession.
Places where owners have the most equity
States with the highest percentage of homeowners who had at least 50 percent equity in their homes in December included Hawaii, 36 percent; New York, 33 percent; and California, 26 percent. Montana, Maine and Washington, D.C., all came in at 24 percent.
Keep up with your wealth and mortgages and follow me on Twitter @JudyMartel.
Get real-time rate quotes with Bankrate's Mortgage app.