Percentage of underwater homeowners plummets

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The percentage of underwater homeowners fell at the fastest pace on record in the third quarter, according to data released Thursday.

The national negative equity rate fell to 21% of all homeowners with a mortgage in the third quarter, down from its Q1 2012 peak of 31.4%, according to a report released Thursday by Zillow. In the third quarter, more than 1.4 million homeowners got their mortgages above water, and nearly 5 million have been freed from negative equity since the beginning of 2012, Zillow reported.

The fall-off in negative equity during the third quarter was driven by high rates of home value appreciation, Zillow reported. Sacramento saw the highest level of appreciation at 34.1%. Also among the top areas for price appreciation were Las Vegas (33.3%), Riverside, Calif. (31.8%), San Francisco (25%) and Detroit (23.3%).

However, about 10.8 million homeowners are still underwater, and the national effective negative equity rate – in which the loan-to-value ratio is more than 80% -- is 39.2%. Not all of those homeowners are underwater, but they don’t have a lot of equity in their homes – making selling and buying a new home difficult, Zillow reported.
  • Brett on 11/22/2013 10:17:43 AM

    If you originally buy the home with only 5% down, or less, it will take a while to get above the 80% LTV threshhold even with modest price appreciation. Most of your payments the initial years of the mortgage are going towards interest, not principal. For example, on a $150,000 mortgage at 4.5% for 30 yrs, making P&I payments of $760/mo, you would have only paid down $13,264 of principal after 5 yrs. With 2% annual appreciation it would still take over 4 yrs to get below 80% LTV.