Negative Equity Rate Improves to 16.9%: Zillow

The number of homeowners who were in negative equity just two years ago has fallen by more than 40% through the third quarter, according to data from Zillow.

Approximately 8.7 million homeowners remain trapped underwater on their mortgages, the Seattle-based analytic firm said Wednesday in a report. However, the overall negative equity rate dropped to 16.9% of all homeowners with a mortgage in the third quarter, down from 21% a year ago. The peak was seen in early 2012, at 31.4%.

Zillow is forecasting that 15.2% of homeowners will be underwater in exactly one year.

Since 2012, more than 7 million homeowners have escaped negative equity, Zillow noted, either by paying down their mortgage balance, short sale and foreclosure or because their home values improved. Cities that were considered to be the hardest hit during the housing crisis like Miami, Atlanta, Detroit, Las Vegas and Riverside, Calif., have seen negative equity rates cut in half over the last two years.

Meanwhile, the effective negative equity rate — mortgaged homeowners who realistically cannot afford the costs of selling and buying a new home — was 35% in the third quarter, Zillow said.

Homeowners who live in less expensive homes were more likely to be underwater compared to those residing in other types of properties. For example, 27.4% of bottom-tier homes were in negative equity through the third quarter, Zillow revealed, while 15.7% of middle-tier homes and 9.3% of top-tier homes were considered to be underwater.

"The market has made terrific strides since bottoming out in late 2011 and early 2012," said Stan Humphries, chief economist for Zillow. "Negative equity will likely be a part of the housing market for years, and easily into the next decade in some hard-hit areas. But we're moving in the right direction, and time will heal all wounds."