The share of American homeowners who are underwater has fallen by the second smallest percentage on record, according to Zillow’s Q1 2017 Negative Equity report released on Friday. Though the number of underwater borrowers is now less than a third of its 2012 peak, this significant slow down isn’t a trend to ignore.
Between Q4 2016 and Q1 2017 just over 5 million U.S. homeowners—or about 10.4 percent of all borrowers—were behind on their mortgage loans. According to the Zillow report, more than three times that—15.7 million—were underwater in 2012.In Q4 2016, 12.7 percent of borrowers were underwater, and in Q1 2012, it was 31.4 percent.
“The 0.1 percentage-point quarterly drop between Q4 2016 and Q1 2017 negative equity was the smallest since a barely noticeable drop from Q3 2014 to Q4 2014,” Zillow reported. “The Q1 2016-Q1 2017 annual change of 2.3 percentage points is the smallest on record (data dates to Q2 2011), tied with the annual drop recorded in Q3 2012 and again in Q2 2016. The annual change, spread over four quarters, is smaller than the one-quarter change recorded between both Q2-Q3 2012 and Q2-Q3 2013.”
The amount that borrowers are underwater is also of note. According to Zillow’s report, an overwhelming majority of America’s underwater borrowers are behind 20 percent or more. Another 15 percent owe twice as much as their home is worth.
“The bulk of those homeowners that remain in negative equity are very deep underwater—56.7 percent of those in negative equity were underwater by more than 20 percent as of the end of Q1,” Zillow reported.
According to the report, homeowners with “shallow negative equity”—or those who are only slightly behind on their loans—have likely caught up by selling in today’s highly appreciating market.
“Essentially, those ‘easy’ homeowners in relatively shallow negative equity have likely already or will soon re-surface as home values have grown over the past few years,” Zillow reported. “That leaves just those millions of harder cases remaining that are likely to take much longer to free.”
Read the full report at Zillow.com.