Almost 2 million homeowners emerge from underwater mortgages

February 22nd, 2013

Nearly 2 million homeowners emerged from a negative equity position in 2012.

The number of homeowners carrying negative equity in their homes continued to decline in the fourth quarter of 2012, demonstrating property remains a solid investment for potential buyers.

The most recent Zillow Negative Equity report found that negative equity dropped to 27.5 percent of all homeowners with a mortgage, compared with 31.1 percent one year ago. As a result, nearly two million homeowners once facing underwater mortgages have now emerged into a positive equity position during the course of 2012. This is largely the result of an increase in home values, which rose 5.9 percent on a year-over-year basis, according to a separate Zillow report.

“As home values continue to rise and more homeowners are pulled out of negative equity in 2013, the positive effects on the housing market will be numerous. Freed from negative equity, homeowners will have more flexibility, and some will likely choose to list their home for sale, helping to ease inventory constraints and moderating sometimes dramatic, demand-driven price increases in some markets,” said Zillow chief economist Stan Humphries.

Phoenix was the city that experienced the largest drop in the number of homeowners facing negative equity, with Los Angeles falling close behind.