A new analysis from Zillow revealed that 1.4 million mortgaged homeowners got their heads above water during the third quarter, the largest quarterly drop in negative equity (and fastest pace) ever recorded by the company.
While this is certainly good news, another 10.8 million Americans with mortgages remain in negative equity positions, meaning they owe more than the value of their property.
However, 4.9 million have gotten back in the black since the beginning of 2012, thanks to impressive home price gains that seem to be making their way back to pre-crisis levels.
The negative equity rate fell to 21% in the third quarter, down from 23.8% a quarter earlier and 28.2% a year ago.
It peaked at 31.4% in the first quarter of 2012, before everyone simultaneously realized real estate was the greatest thing since sliced bread.
If you factor in all homeowners (not just those with mortgages), the negative equity rate dipped to 14.7% in the third quarter from 16.7% three months earlier.
Not Out of the Woods Yet
As mentioned, nearly 11 million homeowners are still underwater. And if you consider homeowners with 20% or less equity in their homes, the so-called “effective negative equity rate,” 39.2% remained underwater during the third quarter.
Zillow notes that selling a home and buying a new one generally requires equity of 20% or more to cover expenses such as moving, down payment, and real estate commissions.
So nearly 40% are still handcuffed to their existing properties, assuming they don’t like where they’re currently at.
This explains the massive shortage of housing inventory, though ironically enough, as home prices rise, more will be free to sell, which could eventually slow price gains or even cause values to fall.
Also consider the fact the recovery rates vary based on the area of the nation, as some metropolitan areas have experienced larger price declines since the boom. And some have recovered quicker than others.
Others never saw much of a boom to begin with, so negative equity wasn’t as much of an issue.
Highest Percentage of Negative Equity During the Third Quarter
1. Las Vegas – 39.6% (peak: 71%)
2. Atlanta – 38.2% (peak: 55.2%)
3. Orlando – 34.2% (peak: 53.9)
4. Chicago – 32.3% (peak: 41.1%)
5. Tampa – 32% (peak: 48.4%)
Lowest Percentage of Negative Equity During the Third Quarter
1. San Jose – 7.6% (peak: 22.7%)
2. Denver – 11.9% (peak: 32.5%)
3. Pittsburgh – 12.1% (peak: 17.5%)
4. Boston – 12% (peak: 22%)
5. San Francisco – 12.4% (peak: 30.7%)
Largest Number of Homeowners Freed From Negative Equity Since Peak
1. Los Angeles – 285,535
2. Phoenix – 256,679
3. Dallas-Fort Worth – 188,226
4. Atlanta – 179,705
5. Detroit – 168,233