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Though three million homeowners were freed from the shackles of negative equity in the past year, it will take at least four more years for 7 million or more deeply indebted homeowners to reach positive equity, even as home values continue their current pace of recovery.

Seven Million to Struggle with Negative Equity for Four Years or More

Though three million homeowners were freed from the shackles of negative equity in the past year, it will take at least four more years for 7 million or more deeply indebted homeowners to reach positive equity, even as home values continue their current pace of recovery.

As home values continue to rise, the national negative equity rate continued to fall in the second quarter, dropping to 23.8 percent of all homeowners with a mortgage, according to the second quarter Zillow® Negative Equity Report. However, millions of homeowners remain so far underwater that it will take years for them to regain equity, even as home values continue their recovery.

Approximately 12.2 million homeowners with a mortgage were in negative equity, or underwater, at the end of the second quarter, owing more on their mortgages than their homes are worth. That is down from 13 million homeowners in the first quarter and 15.3 million at the same time last year. Roughly one-third of homes are owned without a mortgage. The negative equity rate among all homeowners, both with and without a mortgage, was 16.7 percent at the end of the second quarter.

Nationwide, more than half (57 percent) of homeowners in negative equity are underwater by 20 percent or more, and roughly one in seven (13.4 percent) owes more than twice what their home is worth. According to the most recent Zillow Home Value Forecast, home values are expected to rise 4.8 percent in the next year. Assuming appreciation at that rate going forward, it would take a homeowner underwater by 20 percent roughly four years to reach positive equity.

“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. For those homeowners who are deeply underwater, though, there is still a long row to hoe,” said Zillow Chief Economist Dr. Stan Humphries. “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. 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.”

The “effective” negative equity rate, which includes those homeowners with a mortgage with 20 percent or less equity in their homes, fell to 41.9 percent, from 43.6 percent in the first quarter. Listing a home for sale and buying a new one generally requires equity of 20 percent or more to comfortably meet related expenses, including the down payment for a new home and associated closing costs, taxes and real estate agents’ fees. Homeowners without enough equity may remain tied to their homes, even if they are not underwater.

Among the 30 largest metro areas covered by Zillow, those with the highest percentage of mortgaged homeowners with negative equity in the second quarter include Las Vegas (48.4 percent), Atlanta (44 percent) and Orlando (39.8 percent). The second quarter Zillow Negative Equity Forecast[iii] predicts the negative equity rate among all homeowners with a mortgage will fall to at least 20.9 percent by the second quarter of 2014, lifting more than 1.9 million additional homeowners nationwide into positive equity. Of the 30 largest metro areas, the majority of these newly freed homeowners are anticipated to come from Los Angeles (89,677 homeowners), Riverside, Calif. (74,054 homeowners) and Atlanta (61,186 homeowners).

These results are from the second quarter edition of the Zillow Negative Equity Report, which looks at current outstanding loan amounts for individual owner-occupied homes and compares them to those homes’ current estimated values. Loan data is provided by TransUnion®, a global leader in credit and information management. This is the only report that uses current outstanding loan balances on all mortgages when calculating negative equity. Other reports estimate current outstanding loan balance based on the most recent loan on a property (i.e., the original loan amount at time of purchase or refinance).

Metropolitan Area Q2 2013: % of Homeowners w/Mortgages in Negative Equity Q2 2013: “Effective” Negative Equity Rate, Including Homeowners w/ 20% or Less Equity Q2 2014: Forecasted Negative Equity Rate Minimum # of Homeowners Expected to be Freed from Negative Equity by Q2 2014
UNITED STATES

23.8%

41.9%

20.9%

1,961,828

New York

18.7%

32.7%

18.5%

4,742

Los Angeles

18.4%

33.2%

13.1%

89,677

Chicago

35.4%

50.7%

33.2%

38,268

Dallas-Fort Worth

16.5%

42.1%

12.6%

41,436

Philadelphia

22.7%

40.6%

21.4%

14,719

Washington

25.3%

42.9%

23.1%

24,225

Miami-Fort Lauderdale

34.1%

47.1%

31.3%

26,778

Atlanta

44.0%

61.3%

38.2%

61,186

Boston

15.0%

32.3%

13.4%

13,327

San Francisco

17.7%

30.4%

12.8%

33,487

Detroit

37.0%

50.8%

34.0%

25,895

Riverside

36.1%

56.1%

25.1%

74,054

Phoenix

31.3%

47.4%

24.5%

52,236

Seattle

28.0%

46.1%

20.5%

50,065

Minneapolis-St. Paul

26.6%

46.4%

23.8%

19,294

San Diego

21.0%

39.2%

15.1%

27,640

St. Louis

26.6%

47.1%

25.8%

4,711

Tampa

36.3%

50.9%

31.7%

23,805

Baltimore

26.3%

44.4%

23.4%

15,773

Denver

15.3%

38.9%

12.8%

13,165

Pittsburgh

12.8%

27.9%

12.0%

3,110

Portland

22.3%

42.1%

17.7%

19,217

Sacramento

31.5%

50.2%

20.4%

41,781

Orlando

39.8%

55.4%

34.7%

19,541

Cincinnati

24.5%

46.6%

22.9%

6,749

Cleveland

27.1%

45.2%

25.6%

6,077

Las Vegas

48.4%

66.9%

41.3%

23,600

San Jose

11.2%

22.2%

7.9%

9,277

Columbus

26.0%

48.9%

24.3%

5,843

Charlotte

28.3%

51.5%

27.1%

4,443

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