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Underwater Mortgages Fall in the Third Quarter

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The percentage of homeowners underwater on their mortgages has dropped significantly during the past year, according to the quarterly Negative Equity Report from Zillow.

Twenty-one percent of of homeowners with mortgages owed more than their homes were worth in the third quarter. That’s down from 28.2% in the same period of 2012, which is the steepest recorded decline in the national negative equity rate.

The 21% translates to about 10.8 million homes, and while it’s an improvement from the past, it still leaves one in five American homeowners with mortgages underwater, which depresses the inventory of homes for sale. Zillow, an online real estate database, predicts in its report that the negative equity rate will fall to 18.8% by the third quarter of 2014, as home prices are expected to continue climbing.

The report found that some of the metropolitan areas hit hardest by the housing crisis have seen the best rebounds, though underwater mortgages remain prevalent. Las Vegas saw the largest decline in underwater mortgages (down 8.8 percentage points) among the largest 30 metro areas, but it also had the highest negative equity rate among that group: 39.6%. Atlanta and Orlando followed with negative equity rates of 38.2% and 34.2%, respectively.

The delinquency rate among underwater homeowners also declined from last year, from 9.7% to 8%.

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