As the value of the average American home continues to fall, one in five home mortgages is now underwater, meaning the principal on the loan exceeds the market value of the property. Thats the conclusion of a new study by Firm American CoreLogic.

When a property is under water, the owner is unable to refinance the mortgage, or sell it.

The study shows that 8.21 million homes had negative equity at the end of December, rising nine percent from 7.63 million at the end of September. The study warns that another two million homes could go underwater if property values dip another five percent.

Analysts say the most worrisome part of the report is the fact that home prices are beginning to fall in markets that, thus far, have mostly escaped the worst of the housing downturn. Until now, most of the most severe price declines have been in California, Nevada, Florida and Arizona.

Those states, along with Georgia, Michigan and Ohio remained the hardest hit states, with 62 percent of negative equity borrowers and just 41 percent of mortgages.

Connecticut, meanwhile, is racing to join the group. Its share of homes with negative equity surged 25 percent in 2008.

In December, national housing prices fell 11.1 percent from a year ago. As of the end of 2008, the total value of residential properties was $19.1 trillion, down $2.4 trillion from $21.5 trillion in December of 2007.

Home price declines have accelerated the last few months due to the rapid geographic diffusion. As of December 2008, more than 700 CBSAs or nearly three-quarters of all metropolitan markets were experiencing home price depreciation, up from 254 markets in December 2007 and 394 markets in June 2008. The number of metropolitan markets experiencing price declines is by far the highest ever.

"During 2008 homeowners lost $2.4 trillion of their housing wealth, which will continue to put significant stress on consumer balance sheets, particularly as job losses continue to grow. The geographic breadth of price declines rapidly expanded in the second half of 2008, which means that housing wealth losses are broadening across much of the country," said Mark Fleming, Chief Economist for First American CoreLogic.

Since US home prices peaked in July 2006, they have declined 19.3 percent on a cumulative basis and are currently back to the lowest price level since May 2004.