More than 4 million homeowners owe their mortgage lender at least 20 percent more than their homes are actually worth, according to the startling results from Zillow’s first-quarter Negative Equity Report.

More than 4 million homeowners owe their mortgage lender at least 20 percent more than their homes are actually worth, according to the startling results from Zillow’s first-quarter Negative Equity Report.

Although home values are forecast to continue rising, and the number of delinquent loans are dropping, this progress is having little impact on the national negative equity rate, according to the report.

And although spring and summer are always the busiest buying and selling seasons — and there is currently high demand for homes in the bottom third of the market — a disproportionate number of homeowners can’t afford to sell to buyers looking for homes in their price range, the report concluded.

The national negative equity rate dropped to 15.4 percent in the first quarter. A year ago, the rate was 18.8 percent.

The rate of negative equity improved in all of the 35 largest housing markets in the first quarter of 2015, a sign that, metro by metro and home by home, the country is continuing to recover from the lax lending rules and subsequent housing market bust of the last decade, according to the report.

“It’s great news that the level of negative equity is falling, but what really worries me is the depth of negative equity. Millions of Americans are so far underwater, it’s likely they may not regain equity for up to a decade or more at these rates,” said Zillow Chief Economist Stan Humphries.

According to the report, about 7.9 million homeowners were underwater at the end of the first quarter. The rate of underwater homeowners is much higher among the homes with the least value.

More than 25 percent of those who own the least valuable third of homes were upside-down, compared with about 8 percent of the most valuable third of homes, the report found.

Some markets are seeing this more than others. In Atlanta, for example, 46 percent of low-end homeowners were underwater, compared with 10 percent of high-end homeowners. In Baltimore, 32 percent of low-end homeowners were in negative equity, compared with 9 percent of those who own the highest-value homes.

“Because negative equity is concentrated so heavily at the lower end, it throws a real wrench in the traditional housing market conveyor belt,” Humphries said.

“Potential first-time buyers have difficulty finding affordable homes for sale because those homes are stuck in negative equity. And owners of those homes can’t move up the chain because they’re stuck underwater in the entry-level home they bought years ago. The logjam at the bottom is having ripple effects throughout the market, and as home value growth slows, it will be years before it gets cleared up.”

Among the 35 largest housing markets, Las Vegas, Chicago and Atlanta had the highest rates of homeowners in negative equity. A smaller share of homeowners are upside-down in Miami and Detroit, but homeowners there are more deeply underwater.

In both places, over 60 percent of homeowners in negative equity were more than 20 percent underwater.

The report predicts that the negative equity rate among all homeowners with a mortgage will fall to at least 14.1 percent by the first quarter of 2016.

“In the meantime, we’ll be left with volatile prices, limited inventory, tepid demand, elevated foreclosures — and a whole lot of frustration,” Humphries said.

zillow-underwater-june2015

Email Amy Swinderman.

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