1 million homeowners emerge from underwater in 3Q

Nearly a million U.S. homeowners came up from underwater on their home loans in the third quarter, finally owing less than their homes are worth.

The nation's overall negative home equity rate fell to 13.4 percent of homeowners with a mortgage, down a full percentage point from the second quarter and from 16.9 percent a year ago, according to Zillow, the Seattle-based real estate firm. Historically, the typical negative equity rate is lower than 5 percent.

Fast-rising home prices are behind the gains. Home value gains widened in October, up 6.8 percent from October 2014. The gains had been contracting in the first half of this year. Recent price gains have reduced negative equity by a collective $60 billion in just three months. While the increase in home equity is sizable and the improvement since the worst of the housing crash dramatic, the negative equity crisis is far from over. More borrowers will now be able to refinance, but an inordinately large number are still stuck in place.

"Negative equity has become almost an afterthought in a handful of the nation's hottest markets, but is holding back the recovery in dozens of large markets nationwide," said Zillow Chief Economist Svenja Gudell.

Eight years after the housing crash began, more than 6.5 million homeowners are still underwater on their loans, and 30 percent of homeowners with a mortgage are still in an "effective" negative equity position; that means they don't have enough equity in their homes to afford a down payment on the next home or to afford the costs associated with selling and moving.

All real estate is, of course, local, and some markets are drowning far more than others. The effective negative equity rates in Las Vegas (41.3 percent), Kansas City (38.1 percent) and Atlanta (37.9 percent) far exceed the national average. Even San Francisco and San Jose, two of the hottest housing markets in the nation, have effective negative equity rates of 7.7 percent and 11 percent respectively, according to Zillow.

Housing markets with higher rates of negative equity will have fewer homes for sale, as homeowners are stuck in place. Negative equity is concentrated in lower-priced homes, so this especially hurts the first-time buyer looking to purchase those homes. The supply of homes for sale is very tight nationwide, but it is especially tight at the entry level.

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