Roughly 400,000 fewer U.S. homeowners saw their mortgage fall into underwater status in the second quarter, according to new figures compiled by Zillow through its Negative Equity Report.
The research firm said the negative equity bucket improved by $42 billion during the three-month period to $1.15 trillion. (The comparison is to 1Q12.)
There are now 15.3 million (31%) of homeowners with loan balances higher than their property is worth. In the first quarter, 15.7 million Americans or 31.4% of borrowers were considered underwater.
By age group, 48% of borrowers under 40 had an underwater loan. But underwater borrowers between 20 and 24 are more likely to be current on their mortgage, with 5.9% being 90 days or more past due, versus 9.2% for all underwater borrowers.
Zillow chief economist Stan Humphries said rising home values—caused by an inventory shortfall–was the primary driver in the reduction of underwater borrowers. "We hear about tight inventory in many markets, and it's clear where this is coming from,” he said.
“Negative equity is trapping young people in their homes, preventing them from selling,” he added. “These homes are likely the very starter homes potential first-time homebuyers are seeking.”
Earlier this week, Zillow reported home values increased in July on a month-to-month basis, marking eight months in a row. In that report, Humphries said tight inventory is leading to a return of multiple offers and bidding wars.
“Looking ahead, we expect to see less aggressive increases in the fall as rising values lift some would-be sellers out of negative equity, allowing them to place their homes on the market,” he said.