KIRO Radio's Tom Kelly digs deep into the Puget Sound real estate market
Real Estate
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One in five Seattle owners (20.2 percent) owed more than their home was worth at the end of 2013 while 38.9 percent of local owners had less than a 20-percent equity stake. (MyNorthwest file photo)

Zillow report: Twenty percent of Seattle owners 'underwater'

The national "underwater rate" ended 2013 below 20 percent for the first time since the fourth quarter of 2011, dipping to 19.4 percent of all homeowners with a mortgage, according to the fourth-quarter Zillow Negative Equity Report.

Nationally, more than 9.8 million homeowners remain with negative equity, owing more on their mortgage than their home is worth.

Seattle homeowners with negative equity mirrored the national average, according to the Zillow report. One in five Seattle owners (20.2 percent) owed more than their home was worth at the end of 2013 while 38.9 percent of local owners had less than a 20-percent equity stake.

The number of Seattle underwater owners was expected to drop to 16.5 percent by the end of 2014.

"We've reached an important milestone as negative equity has fallen below 20 percent nationwide, which has helped free up marginally more inventory and contribute to further stabilization of the market," said Stan Humphries, Zillow's chief economist. "But a number of headwinds will prevent negative equity from falling at the kind of sustained, rapid pace we need before the market can completely return to normal, and it remains roughly four times what it is in a healthier market. High negative equity is just another sign of how distorted the market continues to be, and how far we still have to go on the road back to normal."

Negative equity has fallen for seven consecutive quarters as home values have risen, freeing almost 3.9 million homeowners nationwide in 2013. The national negative equity rate fell from 27.5 percent of all homeowners with a mortgage as of the end of the fourth quarter of 2012, and 21 percent in the third quarter.

While negative equity is slowly but surely receding, a number of factors will help ensure it remains a factor in the market for years to come. The "effective" negative equity rate, which Zillow defines as homeowners with a mortgage with 20 percent or less equity in their homes, remains stubbornly high. More than one-third of homeowners with a mortgage (37.6 percent) are effectively underwater, unable to sell their homes for enough profit to comfortably meet expenses related to listing a home and purchasing a new one.

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