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The quantity of homes carrying negative equity is on the decline, but homeowners that still carry underwater mortgages continue to face significant financial burdens.
According to the latest Zillow Negative Equity Report, the rate of underwater mortgages among homeowners paying off their home loans was 15.4 percent in first quarter, down from 16.9 percent in the fourth quarter of 2014 and down from 18.8 percent in the first quarter of 2014. However, among the 7.9 million homeowners who owed more than their home is worth, over half—about four million owners—owed more than 20 percent more than the value of their home. Zillow estimated those homes would have to appreciate at least 20 percent for their owners to have any chance of breaking even on a sale.
Among the 35 largest housing markets analyzed by Zillow, Las Vegas, Chicago and Atlanta had the highest rates of homeowners in negative equity. Lower-end housing has been more heavily impacted by this crisis—Zillow found that 46 percent of low-end homeowners in Atlanta were underwater, compared with 10 percent of high-end homeowners, while 32 percent of Baltimore’s low-end homeowners were in negative equity, compared to 9 percent of those who own the highest-value homes.
“It's great news that the level of negative equity is falling, but what really worries me is the depth of negative equity,” said Zillow Chief Economist Stan Humphries. “Millions of Americans are so far underwater, it's likely they may not re-gain equity for up to a decade or more at these rates. And because negative equity is concentrated so heavily at the lower end, it throws a real wrench in the traditional housing market conveyor belt. Potential first-time buyers have difficulty finding affordable homes for sale because those homes are stuck in negative equity. And owners of those homes can't move up the chain because they're stuck underwater in the entry-level home they bought years ago.”