Negative equity to crimp inventory for years to come

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As home prices continued to increase rapidly, the number of underwater homeowners — borrowers who owe more on their mortgages than their homes are worth — fell at a fast clip in the second quarter, Zillow reported.

But even if steady price appreciation continues, millions of borrowers remain years away from regaining positive equity, and with it, a better ability to sell their homes, Zillow said.

According to Zillow, about 12.2 million homeowners, or 23.8 percent of all homeowners with a mortgage, were underwater at the end of the second quarter, down from 13 million in the first quarter and 15.3 million in the second quarter of 2012.

While that marked a 20 percent year-over-year decrease in underwater homeowners, millions of borrowers are still years away from shedding negative equity, even as the market recovers, Zillow said.

“The frustratingly slow pace of negative equity declines in the face of such robust home value appreciation is a direct result of the fact that many people in the hardest-hit markets are underwater by an enormous amount,” said Zillow Chief Economist Stan Humphries in a statement.

“Because of this, negative equity will be a factor in these markets for years to come, constraining the supply of homes for sale and keeping people out of the market who might otherwise get involved.”

Source: Zillow