Beaufort County's percentage of "seriously underwater" homes is higher than the national average and the second-highest in the state, according to a housing-industry research firm.
"Seriously underwater" means the owners owe 25 percent more in loans on their homes than the properties' market value, RealtyTrac says.
But the number of such homes in Beaufort County has declined since 2013, when RealtyTrac first started tracking such properties. That follows a trend of a reduction in the number homes in foreclosure in the county and an increase in home sales since the Great Recession, local real estate and loan officials say.
"There's some fairly negative data that says we got a hangover here," said David Crowell, manager of Mortgage Network's southeastern region. "But the good news is the crushing economic downturn is over. Now we wait for the slow and incremental recovery."
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Last year, 24 percent of homes were seriously underwater in Beaufort County, according to RealtyTrac. This year, 21 percent are.
That compares to 17.2 percent of homes nationally and 13 percent statewide in 2014.
In South Carolina, only Horry County at 23 percent had a higher percentage than Beaufort County.
Loan officers say Beaufort County's debt-ridden homes stem from the run-up to the housing crisis, when many homeowners took out loans on overvalued properties. This practice was particularly prevalent on Hilton Head Island, where second-home owners and investors borrowed large sums for high-end properties.
When the market tanked, many were forced into foreclosure or short sales, Crowell said. At the peak of the housing crisis in the first half of 2010, nearly 1,800 homes in Beaufort County faced some stage of foreclosure, according to RealtyTrac. There were 726 Beaufort County properties in foreclosure during the first half of 2014.
Now, real estate agents point to declining foreclosure rates as a sign the market is recovering. Last month, foreclosure filings in Beaufort County dropped to their lowest level since the housing bubble burst.
"We're still running into it a little bit -- we still have the button on our website that goes to bank-owned properties," Beaufort-based real estate agent Edward Dukes said. "But we see it less and less."
Meanwhile, home sales are rising countywide, Crowell said.
Home sales in the Hilton Head area climbed nearly 10 percent in 2013 compared to 2012, according to the S.C. Realtors Association. Beaufort area sales were even better, increasing 20 percent.
Fewer foreclosures and more real-estate transactions mean property values should rise, too, Crowell said. That rise should bring more homes above water.
"So far, the recovery has been one of market velocity, not market value," he said. "But the value will come back. We just don't know when. It could be two to three years; it could be seven or eight."
Follow reporter Dan Burley at twitter.com/IPBG_Dan.