Bank of America Merrill Lynch analysts said the most likely way households will deleverage roughly $1 trillion in excess debt is through the default of more underwater mortgages. Home prices in the Standard & Poor’s/Case-Shiller 20-city index have dropped 28.6% from the peak in the summer of 2006. This has led to more than 10.8 million homes, or 22.5% of the entire U.S. market in negative equity as of the third quarter, according to the analytics firm CoreLogic (CLGX: 18.26 0.00%). And while that percentage is down from the 50 basis points from the previous quarter, negative equity remains the primary factor holding back a recovery in the housing market and the overall recovery. Analysts said the collapse in home prices means the asset value supporting Americans’ debt is no longer there.
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