SEATTLE (5/21/14)--While negative equity levels continue to decline--as they did for the eighth consecutive quarter in the first quarter, according to Zillow Inc.--millions still find themselves underwater on their mortgages.
The national negative equity rate dropped to 18.8% in the first quarter, down 12.6% from the same quarter in 2012, but still left 9.7 million homeowners who owed more on their mortgage than the value of their house.
"The unfortunate reality is that housing markets look to be swimming with underwater borrowers for years to come," said Stan Humphries, Zillow's chief economist. "It's hard to overstate just how much of a drag on the housing market negative equity really is."
What's more, the majority of homes that are underwater also happen to be the most affordable on the market, which could trip up first-time homebuyers who often first make purchases from the most affordable tier of homes.
As current owners with negative equity have a difficult time listing and selling their homes--often because they don't possess the cash needed to complete the home sale process--it could leave first-time homebuyers with fewer options when entering the market.
About one in three homeowners from the bottom-third of home values were underwater in the first quarter, according to Zillow's negative equity report. That's three times higher than homeowners in the upper-third of home values.
Zillow projects the negative equity rate to continue to drop to 17% of all homeowners by 2015, according to its negative equity forecast.
Increases in home values can inject equity into homes and pull homeowners out of negative standing, but if values rise slowly, the negative equity rate will drop slowly along with it, according to Zillow.