Other parts of the midlands, Wales and north of England have negative equity rates of 7-10%, not much less worrying.
"The fall in negative equity rates means homeowners have additional options for refinancing or selling their homes," Stan Humphries, Zillow's chief economist, said in a statement.
With negative equity rates high and unemployment continuing to rise, we have likely not seen the peak in foreclosure rates".
In cities such as Yuma, Ariz., Bakersfield, Calif., or Port Saint Lucie, Fla., negative equity rates aren't evaporating nearly as quickly.
The "effective" negative-equity rate helps explain why healthy declines in the number of underwater borrowers haven't yet translated into more homes for sale, he said.
But for now, another 18 percent of homeowners with mortgages, while technically above water, still don't have enough equity to make a move, bringing the current "effective" negative-equity rate to nearly 44 percent, Zillow says.
Of the 30 largest metropolitan areas that Zillow tracks, those with the highest "effective" negative-equity rates — including homeowners with 20 percent equity or less — include Las Vegas, 72 percent; Atlanta, 64 percent; and Riverside, Calif., 60 percent.
Many borrowers are too deep in negative equity and the redefault rate is too high.
The Las Vegas market continues to have the highest rate of negative equity, with nearly 69 percent of borrowers underwater (down from 71 percent in the first quarter).
Zillow's Humphries thinks prices are likely to fall another 5% to 7% nationally and bottom out in the middle of 2011 due to excess inventory, high rates of negative equity and high unemployment.
3. The housing recession that began in 2006 and has already led to a decline of more than 26% in the value of homes (assuming they are sold in a non-distressed transaction) has created rates of negative equity that are unprecedented in the post Great Depression era.
