Rising home prices propelled 3.5 million U.S. properties out of negative equity in one year, but the number of underwater mortgages will shrink at a slower pace in the future as price appreciation cools, according to data released today by CoreLogic and Trulia.

Approximately 6.3 million properties, or 12.7 percent of all U.S. mortgaged properties, were underwater in the first quarter of 2014, according to CoreLogic.

That’s down from 6.6 million homes, or 13.4 percent of all U.S. mortgaged properties, in the fourth quarter of 2013, and 9.8 million homes, or 20.2 percent of all mortgaged properties, from a year before.

negative equity

Source: CoreLogic

The rapid price appreciation that has lifted so many homeowners out from underwater has slowed recently. Asking prices were up 8 percent in May from a year ago, the smallest bump in 13 months but still far above the historical norm, according to the latest Trulia Price Monitor.

The home-price slowdown has tempered gains in “hyper-rebounding markets,” like Las Vegas, Sacramento and Oakland, California, Trulia noted. Such markets suffered more during the housing meltdown and typically have high rates of negative equity as a result.

May marked the first month since July 2012 that no major housing market saw annual price gains of more than 20 percent, Trulia said. A year ago, Trulia tracked gains of that magnitude in seven of the 100 largest metros.

trulia home prices

Source: Trulia

That’s a good thing, writes Trulia Chief Economist Jed Kolko, noting that dizzying price gains “encourage flipping and speculation, fuel unrealistic expectations, and add to the risk of future bubbles.”

“Now, with fewer markets going to either extreme than at any time during the recovery, price gains are finally looking more balanced and sustainable,” Kolko said.

But it also means fewer homeowners will move out of negative equity over the next year. CoreLogic projects that home prices will rise by 5 percent over the next 12 months, lifting 1.2 million properties “out of the negative equity trap,” said CoreLogic CEO Anand Nallathambi in a statement.

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