It means that almost two million home owners were freed from negative equity last year, according to the fourth quarter 2012 Zillow Negative Equity Report.
Overall approximately 13.8 million home owners with a mortgage were in negative equity, or underwater at the end of the fourth quarter, owing more on their mortgages than their homes are worth. That was down from 15.7 million in the fourth quarter of 2011. American home owners with a mortgage were collectively underwater by more than $1 trillion at the end of 2012.
In 2012, national home values rose 5.9% year on year, according to the Zillow Home Value Index, to a median value of $157,400. This jump in home values, coupled with sustained high foreclosure rates, were the main drivers for receding negative equity, the data and analytics firm said.
Among the nation's 30 largest metro areas, those with the highest number of home owners freed from negative equity last year were Phoenix with 135,099 home owners freed in 2012; Los Angeles with 72,936 home owners freed in 2012; Miami-Fort Lauderdale with 70,484 home owners freed in 2012; Dallas-Fort Worth with 59,461 home owners freed in 2012; and Riverside, California with 58,417 home owners freed in 2012.
The Zillow Negative Equity Forecast predicts the negative equity rate among all home owners with a mortgage will fall to at least 25.5% by the fourth quarter of 2013, freeing more than 999,000 additional home owners nationwide.
Of the 30 largest metro areas, the majority of these newly freed home owners are anticipated to come from Los Angeles with an estimated 72,696 home owners to be freed in 2013; Riverside with an estimate of 62,407; Phoenix with an estimate of 43,044; Sacramento with an estimate of 33,356; and Dallas-Fort Worth with an estimate of 31,434.
Zillow forecasts negative equity by applying anticipated appreciation or depreciation rates to a home, according to the most current metro and national Zillow Home Value Forecasts, and by assuming all other factors remain constant.
‘As home values continue to rise and more home owners are pulled out of negative equity in 2013, the positive effects on the housing market will be numerous,’ said Zillow chief economist Stan Humphries.
‘Freed from negative equity, home owners will have more flexibility, and some will likely choose to list their home for sale, helping to ease inventory constraints and moderating sometimes dramatic, demand driven price increases in some markets,’ he added.
But he warned that negative equity is still very high. ‘Millions of home owners have a very long way to go to get back above water, even with current robust levels of home value appreciation in most areas. As a result, negative equity will remain a major factor in the market for the foreseeable future,’ he explained.