The recently released second quarter 2013 Zillow Negative Equity Report showed the national negative equity rate continued to fall in the second quarter, dropping to 23.8% of all homeowners with a mortgage from 25.4% in the first quarter of 2013. The negative equity rate has been continually falling for the past five quarters, and the second quarter of 2013 was down significantly from the 30.9% rate in the second quarter of 2012 – a decrease of more than 7 percentage points. In the second quarter of 2013, more than 805,000 American homeowners were freed from negative equity. However, more than 12 million homeowners with a mortgage remain underwater. Abnormal levels of negative equity will remain with us for the foreseeable future as many metros not only have many mortgaged homeowners underwater, but many of these homeowners are also deeply underwater. The interactive figure below shows the loan-to-value (LTV) distribution for homeowners with a mortgage in the nation in 2013 Q2 vs. 2012 Q2 for all of the metros (please select one from the drop-down) covered by the Zillow Negative Equity Report.

Even though many homeowners are still underwater and haven’t crossed the 100% LTV threshold into positive equity, they are moving in the right direction. The good news is that with the high rates of appreciation we have been experiencing as part of the housing recovery, negative equity has been reduced at a fast pace in the near-term (this will change as home value appreciation moderates later on this year and into the next, as current rates are not sustainable). Over the past year, the negative equity rate in Phoenix dropped by 20.4 percentage points. Las Vegas’ dropped by 20.1 percentage points, and Sacramento’s dropped by 17.7 percentage points (Q2 2012-Q2 2013). In some cases, high home value appreciation rates have produced only relatively small decreases in negative equity rates. However, the depth of negative equity has been significantly impacted. In the Phoenix metro, the percentage of homeowners with a mortgage who owed more than double what their houses were worth was reduced from 12.5% to 4.6% from the second quarter of 2012 to the second quarter of 2013, which can be seen when comparing the last two bars (the over 200% LTV bucket) in the graph below. In the Las Vegas metro, 12.9% of homeowners with a mortgage owe more than twice the amount of their homes’ value. This number compares favorably to how deeply underwater Las Vegas homeowners were a year ago. In 2012 Q2, 24.7% of homeowners with a mortgage in the Las Vegas metro owed more than double what their homes were worth.