• The negative equity rate for U.S. homeowners has dropped sharply, potentially freeing up homes to go on the market.
  • The decline is largely due to home price appreciation at the lower end of the market.
  • Nearly 20 percent of condo owners remain underwater.

There soon could be more homes on the market for first-time buyers as millions of homeowners realize they have enough equity to sell.

Foreclosures, short sales and rising home values are freeing homeowners from the shackles of upside-down mortgages, according to Zillow’s Negative Equity Report for the second quarter.

The nation’s negative equity rate dropped below 15 percent during the second quarter, cutting the number of homeowners who owe more on their mortgages than their home is worth in half — from 15 million at the worst point of the housing crisis to 7.5 million now, Zillow said.

That’s the first time the negative equity rate has fallen below 15 percent since the real estate bubble burst, the online real estate marketplace noted.

The decline is largely due to strong appreciation of the least valuable third of homes during the first half of the year, Zillow said. These homes are typically more likely to be further underwater than more valuable homes.

“If the overall negative equity rate is going to continue to fall, it will need to keep being driven down by improving health at the bottom end of the market,” said Svenja Gudell, Zillow’s chief economist.

“The least valuable homes really bore the brunt of negative equity during the recession, and that’s where most negative equity remains concentrated today.

“As more first-time buyers enter the market seeking these less expensive homes, home value growth at the bottom end could continue to outpace growth overall, which will be good news for millions of underwater homeowners in these homes.”

Still, nearly 20 percent of condominium owners remain underwater, according to Zillow. Condo owners are in far worse shape than single-family homeowners, particularly in Chicago, Orlando and Las Vegas.

In only three markets — Detroit, Memphis and Pittsburgh — are single-family homeowners more likely to be underwater than condo owners, according to the report.

Email Amy Swinderman.

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