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Negative Equity Rate Down, but Concerns Loom

The number of homeowners underwater on their mortgages continued to fall in Q1, but millions still lack enough equity to afford to move, ""Zillow"":http://www.zillow.com/ revealed in its first-quarter Negative Equity Report.

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According to the report, the national negative equity rate was 25.4 percent in the last quarter compared to 27.5 percent at the end of 2012. That percentage represents slightly more than 13 million homeowners with a mortgage, Zillow said.

However, when including homeowners with less than 20 percent home equity, the ""effective"" negative equity rate climbs to 43.6 percent, or a total of 22.3 million homeowners. In its report, Zillow explained that these [COLUMN_BREAK]

homeowners likely can't afford a down payment for a new home, tying them to their current homes and exacerbating the inventory shortage.

""Reaching positive equity, even barely, is an important milestone. But things like real estate agents' fees and a down payment for the next home traditionally come out of the proceeds from the prior home's sale,"" said Zillow chief economist Dr. Stan Humphries. ""Without enough equity, these costs will instead have to come out of a homeowner's pocket, leaving many still stuck.

""Looking at the effective negative equity rate could explain why recent, healthy declines in the number of underwater borrowers haven't yet translated into more homes for sale. The only cure is patience, as rising home values continue to build equity to the point where more homeowners can realistically sell,"" he continued.

Among the 30 largest metro areas covered by Zillow, those with the highest effective negative equity rate are Las Vegas, Nevada (71.5 percent); Atlanta, Georgia (64.1 percent); and Riverside, California (59.7 percent).

For the first quarter of 2014, Zillow predicts the negative equity rate among all homeowners with a mortgage (but excluding those who are in low positive equity) will fall to 23.5 percent, lifting more than 1.4 million additional homeowners into positive territory.

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