The number of homes that are financially underwater decreased in the second quarter, as property values for the bottom third of the market saw faster rates of growth, according to Zillow.
The U.S. negative equity rate fell to 14.4% in the second quarter, the first time since before the financial crisis that the rate has dipped below 15%, according to Zillow's
About 7.4 million homeowners nationwide were upside-down on their mortgages, as of June 30.
The negative equity rate has declined due to foreclosures, short sales and rapidly rising home values, especially among properties in the lowest one-third of the market. Yet, these homes are also the most likely to remain underwater right now.
“If the overall negative equity rate is going to continue to fall, it will need to keep being driven down by improving health at the bottom end of the market,” Svenja Gudell, Zillow's chief economist, said in a news release. “The least valuable homes really bore the brunt of negative equity during the recession, and that's where most negative equity remains concentrated today.” The upside is that these are also the homes that attract the interest of first-time buyers and that is likely to support continued price growth for this segment of the market.
Cities that have experienced significant increases in the value of bottom-third homes include Atlanta; Sacramento, Calif.; Riverside, Calif.; and Phoenix.
