Negative equity fell in the third quarter, with 28.2 percent of all homeowners with mortgages underwater, down from 30.9 percent in the second quarter, according to the third quarter Zillow® Negative Equity Report. This is the first time negative equity has fallen below 30 percent, and is the biggest quarter-over-quarter drop in negative equity, since Zillow revised its method for determining negative equity in the first quarter of 2011.
Slightly more than 14 million U.S. homeowners with a mortgage were in negative equity, or underwater, in the quarter, owing more on their mortgages than their homes are worth. That was down from 15.3 million in the second quarter. Additionally, the nation's 30 largest metro areas covered by Zillow's report experienced quarter-over-quarter declines in negative equity.
Much of the decline in negative equity can be attributed to U.S. home values rising 1.3 percent in the third quarter compared to the second quarter, to a median value of $153,800, according to the Zillow Home Value Index.
"The fall in negative equity rates means homeowners have additional options for refinancing or selling their homes," said Zillow Chief Economist Dr. Stan Humphries. "But while we're moving in the right direction, a substantial number of homes are still locked up in negative equity, unable to enter the existing re-sale market despite the desires of their owner. The housing market has found real momentum of its own, but is not immune from shocks to the broader economy. If negotiations centered on resolving the fiscal cliff don't inspire confidence in investors and consumers alike, recent home value gains–and, as a result, falling negative equity rates–could stall."
Of the 30 largest metro areas covered by the report, the five experiencing the largest quarterly declines in negative equity were Phoenix (-6.2 percentage points), Las Vegas (-5.5 percentage points), Denver (-4.9 percentage points), Sacramento, Calif. (-4.6 percentage points) and Orlando (-4.2 percentage points).