17% of Homeowners Still Underwater on Mortgage

One in six U.S. homeowners with mortgages — or 8.7 million people — were still underwater on their mortgage in the second quarter of 2014, despite rising home values, Zillow finds in its latest Negative Equity Report.

The negative equity rate dropped to 17% in the second quarter of 2014 from 23.8% a year prior and 18.8% in the first quarter of 2014. Looking ahead, Zillow projects the rate to drop to 14.9% by the end of the second quarter of 2015.

Nationally, millennial homeowners held 19.6% of all underwater mortgages while Generation X held 18.7% and baby boomers held 10.9%.

The “effective” negative equity rate, or the percentage of homeowners who have less than 20% equity in their home, fell to 34.8% in the second quarter, down from 36.9% in the first quarter of 2014, and down from 41.9% last year a year prior. Those who have less than 20% equity in their current home may have a difficult time covering the costs on selling and purchasing a new property.

Overall, the rate continues to recede as home values keep growing, but the trend will likely move at a slower pace because the rate of home value growth is slowing and expected to continue to slow.

Previously, reports showed that about 80% of the nation’s real estate markets were projected to appreciate in value over the next 12 months, though the remaining 20% were expected to depreciate over the next year.

Editor’s note: This article has been updated to reflect corrections Zillow issued, which rescinded previous conclusions. 

Written by Emily Study

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