According to a recent report by Zillow, an online housing-market database, almost two million people resurfaced from being underwater on their mortgage last year. In the fourth quarter of 2012, the national negative equity rate fell to 27.5 percent of all homeowners, compared to 28.2 percent in the previous quarter and 31.1 percent a year earlier.

Due to low inventory levels and centrally-planned lower interest rates, rising home prices have been one of the main factors in reducing negative equity levels across the nation. On average, Zillow reports that home values increased 5.9 percent in 2012, with some hard-hit regions showing even stronger appreciation.

For example, Phoenix homeowners enjoyed a 22.5 percent surge in home prices last year, which led to a reduction of 17.4 percent in negative equity rates. Las Vegas witnessed a decline of 11.1 percent in underwater homeowners.

“Freed from negative equity, homeowners will have more flexibility, and some will likely choose to list their home for sale, helping to ease inventory constraints and moderating sometimes dramatic, demand-driven price increases in some markets,” explains Zillow Chief Economist Dr. Stan Humphries. “But negative equity is still very high, and millions of homeowners have a very long way to go to get back above water, even with current robust levels of home value appreciation in most areas. As a result, negative equity will remain a major factor in the market for the foreseeable future.”

Although the underwater situation is showing modest signs of buoyancy, there are still 13.8 million homeowners who owe more than their home is worth.

Looking ahead, Zillow expects the negative equity rate among all homeowners with a mortgage to fall to at least 25.5 percent by the fourth quarter, freeing nearly one million additional homeowners nationwide. Among the largest metro areas, the majority of these expected freed homeowners will come from Los Angeles, Riverside, Phoenix, Sacramento, and Dallas-Forth Worth. Over the next year, Zillow estimates a 3.3 percent  rise in home values.

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