The number of homeowners upside down on their mortgages has tumbled by more than 40% since early 2012, Zillow’s (Z) third quarter Negative Equity Report found.
The negative equity rate decreased to 16.9% of all homeowners with a mortgage in the third quarter, down from 21% in the third quarter of 2013 and is expected to fall to 15.2% by the end of the third quarter of 2015.
As a result, more than 7 million Americans who at one point owed more on their mortgages than their homes were worth have escaped, leaving roughly 8.7 million homeowners trapped underwater on their mortgages.
However, despite the significant amount still left, the negative equity rate has halved since 2012 in the markets hit hardest by the recession.
“The market has made terrific strides since bottoming out in late 2011 and early 2012, with millions of underwater homeowners freed in just the past few years, and millions more set to surface in coming months and years,” said Zillow Chief Economist Stan Humphries.
“Looking at negative equity helps us understand so many of the currently out-of-whack dynamics in the housing market, including low inventory, rapid home value appreciation and weak sales volumes. None of these problems will be solved overnight, in large part because negative equity will likely be a part of the housing market for years, and easily into the next decade in some hard-hit areas,” Humphries added.
The effective negative equity rate, including homeowners without enough equity to realistically afford the costs of selling and buying a new home, was 35% in the third quarter.
Nationwide, 27.4% of bottom-tier homes were in negative equity in the third quarter, compared to 15.7% of middle-tier homes and 9.3% of top-tier homes.
Recently, there has been a great deal of debate around the issue of principal reductions for delinquent borrowers, with a recent Black Knight report finding that delinquent underwater borrowers would require $89 billion in principal write-downs.