Zillow: 12.2M Homeowners Underwater in Q2

The national negative equity rate continued to drop in the second quarter as home values marched upward, according to figures released by ""Zillow"":http://www.zillow.com/.

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Zillow's most recent Negative Equity Report shows approximately 12.2 million homeowners owed more on their mortgage than their home is worth last quarter, down from 13 million in the first quarter and 15.3 million the same time last year.

Those 12.2 million underwater homeowners represent approximately 23.8 percent of all homeowners with a mortgage, Zillow said. The negative equity rate among all homeowners--including those without a mortgage--was 16.7 percent at the end of the quarter. (Roughly one-third of homes are owned without a mortgage.)

For the second quarter of 2014, Zillow predicts the negative equity rate will fall to 20.9 percent, lifting an additional 1.9 million homeowners into positive equity.

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""Widespread rising home values during the past year have helped chip away at negative equity nationwide, helping many homeowners who were only modestly underwater to come up for air,"" said Zillow chief economist Dr. Stan Humphries. ""For those homeowners who are deeply underwater, though, there is still a long row to hoe.""

Out of those homeowners in negative equity, 57 percent were underwater by 20 percent or more, and roughly 13.4 percent owed more than twice their home's worth.

If home values appreciated at an annual rate of 4.8 percent per year (Zillow's forecast for the next year), it would take a homeowner underwater by 20 percent nearly four years to reach positive equity.

""The frustratingly slow pace of negative equity declines in the face of such robust home value appreciation is a direct result of the fact that many people in the hardest-hit markets are underwater by an enormous amount,"" Humphries said. ""Because of this, negative equity will be a factor in these markets for years to come, constraining the supply of homes for sale and keeping people out of the market who might otherwise get involved.""

Meanwhile, the ""effective"" negative equity rate--which includes homeowners with a mortgage who have 20 percent or less equity in their homes--was 41.9 percent in Q2, a decline from 43.6 percent in the prior quarter. Because of the expenses associated with listing a home and buying a new one, those owners with equity of less than 20 percent are essentially locked into their homes, regardless of whether or not they're actually underwater.