It is the first that that the Zillow Negative Equity Report has fallen below 30% and is the biggest quarter on quarter drop in negative equity, since Zillow revised its method for determining negative equity in the first quarter of 2011.
Slightly more than 14 million home owners with a mortgage were in negative equity, or underwater, in the quarter, owing more on their mortgages than their homes are worth. That was down from 15.3 million in the second quarter.
The Zillow report says that much of the decline in negative equity can be attributed to US home values rising 1.3% in the third quarter compared to the second quarter, to a median value of $153,800.
‘The fall in negative equity rates means home owners have additional options for refinancing or selling their homes,’ said Zillow chief economist Stan Humphries.
‘But while we’re moving in the right direction, a substantial number of homes are still locked up in negative equity, unable to enter the existing re-sale market despite the desires of their owner. The housing market has found real momentum of its own, but is not immune from shocks to the broader economy,’ he explained.
He added that if negotiations centred on resolving the fiscal cliff don’t inspire confidence in investors and consumers alike, recent home value gains and, as a result, falling negative equity rates, could stall.
Of the 30 largest metro areas covered by the report, the five experiencing the largest quarterly declines in negative equity were Phoenix, down 6.2%, Las Vegas down 5.5%, Denver down 4.9%, Sacramento in California down 4.6% and Orlando down 4.2%.
These results are from the third edition of the Zillow Negative Equity Report, which looks at current outstanding loan amounts for individual owner occupied homes and compares them to those homes’ current estimated values.
Loan data is provided by TransUnion, a global leader in credit and information management. This is the only report that uses current outstanding loan balances on all mortgages when calculating negative equity. Other reports estimate current outstanding loan balance based on the most recent loan on a property, that is the original loan amount at time of purchase or refinance.
