First these numbers given in the article are just for the New York-New Jersey region. There are some things to note about these numbers - first they include Manhattan. Second Zillow does not usually include Bergen County or most of Middlesex County. See the New York metro Zillow map here for the regional represented in this article.
In the New York metropolitan market, including northern New Jersey, home prices in the April-June period fell an average of 6.6 percent from the second quarter of 2007, and 14.2 percent of homeowners who bought during the last five years are under water, Zillow.com said.
"That means one out of every seven people in New Jersey are facing negative equity, and that number rings true to me," said Jeffrey Otteau, head of Otteau Appraisal Group in East Brunswick and an expert on the state's housing market. "The subprime lending boom was characterized by little or no money down, where borrowers financed their entire transaction, and in some cases financed more than the full purchase price."
Mirroring the national trend, the highest rates of negative equity in the New York-New Jersey market are affecting those who bought their homes in 2006, with 26.6 percent of them now underwater....
In the New York-New Jersey area, 14.6 percent of homes sold for a loss during the second quarter. And 5.3 percent of all transactions during the quarter involved homes in foreclosure, the Zillow.com report said.
This is not to dismiss the regional numbers. Some of the numbers are not surprising. House values have dropped in the last year. Late 2005 through 2006 purchases were at the highest, most inflated prices. Those who did not have a substantial down-payment will be underwater. In normal growth times it takes many years just to recover all the closing costs. Therefor even in normal times there will always be people who would have to sell at a loss. Given the zero down-payments available during the bubble these buyers will almost always sell for a loss.