While negative equity levels keep drifting lower, there is still a large group of homeowners that must remain patient.
And by patient, I mean waiting another four years or so before simply breaking even, assuming home price forecasts hold true.
In Zillow’s latest Negative Equity Report, which I suppose has plenty more editions to come, the company noted that 23.8% of all borrowers with a mortgage were underwater as of the end of the second quarter.
While still elevated, that number is down from 25.4% in the first quarter and 30.9% a year ago, the fifth straight quarterly decline thanks to rapidly ascending home prices.
It’s expected to drop to 20.9% by the second quarter of 2014, freeing another 1.96 million homeowners from negative equity.
During the second quarter, roughly 800,000 homeowners were finally able to see the light of day, with the total number of underwater homeowners dropping from 13 million to 12.2 million.
A year ago, 15.3 million homeowners couldn’t get a breath of fresh air.
For the record, about one-third of all homes do not have a mortgage, so the negative equity rate for ALL homeowners is significantly lower at just 16.7%.
Not Everyone Is Sitting So Pretty
While the numbers are clearly improving steadily, there is still a large group of homeowners that have a ways to go before getting back in the black.
In fact, 57% of homeowners have a loan-to-value ratio of 120% or more, so with home values expected to rise 4.8% annually over the next year, it would take another four years to simply get back to even (assuming appreciation keeps up).
Even worse, one in seven negative equity borrowers still owes more than twice what their home is worth. You might think it’s amazing that they’ve stuck around this long…I do.
For this group, it will take many more years to break even, and that’s still not enough to actually part with the home.
Zillow defines those with less than 20% home equity as being part of the “effective” negative equity group because listing a home and buying a new one generally requires that amount for expenses, commissions, and down payment.
So it will be a very long road for these homeowners to go from 200% LTV to 80% LTV. It also means that a lot of inventory will essentially be locked up for years to come, even a decade or longer.
Las Vegas Still the Negative Equity King
Despite being the home price leader in the nation over the past year, Las Vegas still leads in negative equity as well.
Kind of a symbolic way of summing up Sin City, where there are big winners alongside those down on their luck.
In the desert oasis, 48.4% of homeowners with mortgages remained underwater as of the end of the second quarter, down from 54.3% a quarter earlier. By the end of the second quarter in 2014, it should fall to a slightly healthier 41.3%.
The second worst metro in the U.S. was Atlanta, where the negative equity share dipped to 44% from 47.6% a quarter earlier.
Third was Disneyworld (I mean Orlando, Florida) with negative equity of 39.8%, down from 41.8% in the first quarter.
In these three hard-hit regions of the country, the “effective” negative equity rates were 66.9%, 61.3%, and 55.4% as of the end of the second quarter, respectively.
Nationwide, the “effective” rate is still 41.9%, meaning we’ve got a lot longer to go before the crisis abates.
Read more: How to refinance with negative equity.