The number of homes in negative equity continued to shrink, but overall levels of negative equity remain high and are holding back a full-scale housing market recovery, according to Zillow.
The rate of homes that are financially underwater fell to 13.4% in the third quarter, according to Zillow's Negative Equity Report. That's down from 14.4% in the second quarter, and down from 16.9% a year earlier.
About 1 million homeowners nationwide were freed from negative equity in the third quarter.
"Negative equity has become almost an afterthought in a handful of the nation's hottest markets, but is holding back the recovery in dozens of large markets nationwide," Svenja Gudell, Zillow's chief economist, said in a news release.
In Las Vegas, about 22% of homeowners remain underwater and another 19% are "effectively underwater," meaning they have less than 20% equity in their homes and could not cover the cost of selling it and buying another.
Chicago had the second-highest rate of negative equity among the largest metro areas, followed by Atlanta, St. Louis and Baltimore.
San Jose, Calif., had the lowest rate of negative equity, at 3%. It was followed by San Francisco, Denver, Dallas-Fort Worth and Portland, Ore.
