Zillow just released their 4th quarter real estate market report for the nation and the 25 largest metropolitan areas. What it shows is that for the Chicago area 38.6% of all homes are underwater. This data is based upon Zillow's estimates of home values, which are notoriously inaccurate, but let's assume that those errors cancel out over large samples. This is a huge number but at least we're not Phoenix, which is rising - 70%.
The problem is that many industry experts believe that negative home equity is the single biggest driver of mortgage defaults and hence short sales and foreclosures. As I mentioned yesterday, Chicago already has almost a 6 year supply of distressed property inventory. How much worse can it get?