A new report by First American CoreLogic confirms some of our worst fears about the housing industry: it found that nearly 10.7 million homes, or 23% of US residential properties, actually owe more money on their homes than they are currently worth. Put another way, almost one in four homeowners in the United States has a mortgage that’s underwater right now.

This does not mean that all those people are going bankrupt or even losting money at the moment, but it does illustrate exactly how far down home values across the United States have gone in the past several years. Many of these people are still paying their mortgages on time and, as long as they don’t need to move, they do not have any real hardship being caused by this disturbing new finding.

Five states have been the worse hit by this housing value bust: Nevada (65%), Arizona (48%), Florida (45%), Michigan (37%) and California (35%). Across the United States there are an additional 5% of US homes that have 5% or less in their home’s equity value, which means they are in danger of being upside-down in their home loans.

Many of the people who are currently underwater in their mortgages follow a specific pattern:

• They bought or financed their properties between 2005 and 2008.
• They financed their homes with adjustable rate mortgages (ARMs) instead of steadier fixed rate mortgages.

• They bought properties with values slightly below the US average. Some experts point to this as a sign that some people were being approved for mortgages when they simply couldn’t afford it and wouldn’t have normally been given a mortgage loan in a more stable housing market.

The drop in home values across the United States is one of the leading causes of the current recession because most Americans have most of their wealth tied up in the largest purchase of their lives: their house. If those houses all lose value overnight then there aren’t many people who can borrow against that value with a home equity loan to pay for services or new products. Without anyone buying new products or services it’s nearly impossible to see how more jobs will be created anytime soon.