1 in 5 Homeowners Still Underwater at Year’s End

The national negative equity rate ended 2013 below 20% for the first time in years, dipping to 19.4% of all homeowners with a mortgage.

More than 9.8 million homeowners are still underwater nationwide.

The fourth quarter of 2013 is the seventh consecutive quarter that home values have risen, freeing almost 3.9 million homeowners nationwide in all of 2013.

The national negative equity rate fell from 27.5% of all homeowners with a mortgage as of the end of the fourth quarter of 2012, and 21% in the third quarter.

But while negative equity is slowly but surely receding, a number of factors will help ensure it remains a factor in the market for years to come.

“We’ve reached an important milestone as negative equity has fallen below 20% nationwide, which has helped free up marginally more inventory and contribute to further stabilization of the market,” said Zillow chief economist Stan Humphries. “But a number of headwinds will prevent negative equity from falling at the kind of sustained, rapid pace we need before the market can completely return to normal, and it remains roughly four times what it is in a healthier market. High negative equity is just another sign of how distorted the market continues to be, and how far we still have to go on the road back to normal.”

Home values ended 2013 up 6.6%, the single-largest contributor to the falling negative equity rate. But the pace of home value appreciation is slowing, with home values expected to rise just 3.4% over the next 12 months, according to the most recent Zillow Home Value Forecast.