Report: Negative equity declines with rising prices

Rising home prices are helping trim the ranks of underwater homeowners in Los Angeles and Orange counties, a new report by real estate information company Zillow Inc. says.

There were an estimated 438,012 homes underwater in Los Angeles and Orange counties in the third quarter. A home is underwater when the outstanding debt on the property is more than what the home would fetch in a sale.

That represented about 25.9% of homes with mortgages in the region, down from 28.9% in the second quarter.

The website estimates that there is roughly $58.9 billion worth of negative equity in the two counties.

In a news release, Zillow chief economist Stan Humphries said the decrease in negative equity should help homeowners looking to refinance out of costly loans or sell their properties. Of homes that were in negative equity at the end of the third quarter, 2 in 5 were underwater by 20% or less, Zillow estimated.

“A substantial number of homes are still locked up in negative equity, unable to enter the existing resale market despite the desires of their owner,” Humphries said. “The housing market has found real momentum of its own but is not immune from shocks to the broader economy.”

Nationally, homes with negative equity declined to 28.2% of all homes in the third quarter from 30.9% in the previous quarter. It was the first time that Zillow’s report had noted negative equity falling below 30%.

Slightly more than 14 million U.S. homeowners with a mortgage were underwater last quarter, down from 15.3 million in the second quarter. Of the 30 major metropolitan area covered in the Zillow report, the ones with the biggest drops in negative equity were Phoenix, Las Vegas, Denver, Sacramento and Orlando, Fla.

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