Negative equity in the third quarter experienced the largest quarter-over-quarter decline since the first three months of 2011, according to the latest data from Zillow.
More than 14 million U.S. homeowners with a mortgage (28.2%) were underwater in 3Q. This is down from 15.3 million, or 30.9%, in the previous quarter.
“The fall in negative equity rates means homeowners have additional options for refinancing or selling their homes,” said Stan Humphries, chief economist for Zillow. “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 resale market despite the desires of the owner.”
One of the main attributions for the drop in negative equity was the increase in home values. Zillow’s home value index found a 1.3% rise for property prices nationwide in the third quarter compared to the second.
Of the largest 30 metropolitan areas covered by Zillow in its negative equity report, the five largest quarterly declines occurred in Phoenix which was down 6.2 percentage points, Las Vegas had a 5.5 point decrease, Denver fell 4.9 points, Sacramento dropped 4.6 percentage points and Orlando descended 4.2 points.
However, the Seattle based data provider said the fiscal cliff could derail any confidence the housing industry is currently experiencing.
“The housing market has found real momentum of its own, but is not immune from shocks to the broader economy,” Humphries added. “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.”