Nationwide, 9.7 million, or 19.8 percent of homeowners with a mortgage, owed more on their homes than they were worth as of March, says market researcher CoreLogic.
That’s down from 12.1 million at the end of 2011, just as home price gains were kicking off in many markets.
All told, the nation’s negative equity decreased more than $50 billion to $580 billion as of March, down from $631 billion in December, CoreLogic says.
Rising home prices, up 12.1 percent in April year-over-year, have lifted 1.7 million home loan borrowers above water in the past year, the data show.
If prices continue to rise, more borrowers will likely list homes for sale. That will moderate price gains in many of the fast-appreciating markets, says Mark Fleming, CoreLogic chief economist.
The declining ranks of underwater homeowners are a plus for the economy. Borrowers with equity in their homes are less likely to default on those loans, they’re more avid spenders and they’re more able to sell homes and move to other locations to pursue job opportunities, says Mark Zandi, chief economist of Moody’s Analytics.
With so many borrowers remaining underwater, “We still have a long way to go but we are making quick progress,” Zandi says.
As homeowners gain equity in their homes, they can also refinance and take advantage of lower interest rates to reduce their mortgage costs, says Christopher Thornberg, economist at Beacon Economics. Those people then have more money to spend on other things.
As of December, 45 percent of homeowners with mortgages still had loans with interest rates above 5 percent, CoreLogic data show. The monthly average rate on a 30-year, fixed-rate loan has been below 4 percent since late 2011, Freddie Mac data show.
States that suffered the biggest run-ups in home price gains—then fell hard after the housing bubble burst—still lead in terms of underwater borrowers.
As of March, Nevada had the highest percentage of mortgaged properties that were underwater, at 45.4 percent, followed by Florida at 38.1 percent . Michigan, Arizona and Georgia round out the top five, all over 30 percent.