The nation's backlog of underwater mortgages continued to decline in the fourth quarter of 2015, but six million homeowners are still dogged by negative equity, according to the quarterly Zillow Negative Equity Report, released Wednesday morning.
The negative equity rate fell to 13.1 percent nationally, down from 16.9% in the same period a year earlier. Still, 820,000 of the underwater homeowners owe more than twice what their homes are worth. There were eight million underwater mortgages at the close of 2014.
Negative equity can act as a drag on existing home sales as homeowners who would otherwise move hang on to their properties in hope that over time, they appreciate. Zillow notes that these properties often are located in less expensive areas, magnifying the effect on supply in the first-time buyer segment.
"Even though the number of underwater homeowners has fallen significantly since the peak of the housing crisis, negative equity persists in many markets as it fell at its slowest pace in a year," said Zillow Chief Economist Dr. Svenja Gudell. "Things are moving in the right direction, but some owners are still deeply underwater. As we move into the home shopping season, inventory is already low, and negative equity is keeping potential additional stock from becoming available."
Las Vegas, ground zero of the housing crash, still had the highest rate of negative equity at 20.9 percent, followed closely by Chicago, where 20.5 percent of homeowners were upside down on their mortgages. In San Jose, only 2.8 percent of mortgaged homeowners were underwater.
The Zillow Negative Equity Report incorporates mortgage data from TransUnion and includes, but is not limited to, negative equity, loan-to-value ratios, and delinquency rates. To calculate negative equity, the estimated value of a home is matched to all outstanding mortgage debt and lines of credit associated with the home, including home equity lines of credit and home equity loans. The report covers more than 870 metros, 2,400 counties, and 23,000 ZIP codes across the U.S.