NEW YORK (CNNMoney.com) -- More than 20% of the nation's mortgage borrowers owe more than their homes are worth.
At 21.5% for the third quarter, it is a small improvement over the previous quarter, when 23.3% of loans were underwater, according to real estate website Zillow.com.
This so-called negative equity is a hotly watched statistic because it is a prime predictor of foreclosure -- second only to loss of income.
"It is the paramount challenge facing housing markets," said Stan Humphries, Zillow's chief economist. "We already have had record levels of foreclosure and, combined with high unemployment, negative equity is very toxic to the market."
But don't cheer about the slight gains in the past three months. Most of the improvement comes because so many people lost their homes to foreclosure
In some markets, residents were helped by improving home prices. As prices rise, it narrows the gap between what homeowners owe and what they could sell for. As a result, hard-hit metro areas such as Merced, Calif., and Orlando, Fla., recorded huge declines in the number of underwater borrowers. Merced was down to 40% while Orlando fell to 64.6%.
In fact, most markets trended up. Only 25 of 142 markets surveyed lost ground, led by Lansing, Mich., where negative equity grew to 31.5%.
Neighboring Detroit also worsened, jumping up to 31.4%, as did Grand Junction, Colo., where the it grew to 31.2%.
|Overnight Avg Rate||Latest||Change||Last Week|
|30 yr fixed||4.09%||4.12%|
|15 yr fixed||3.51%||3.56%|
|30 yr refi||4.14%||4.13%|
|15 yr refi||3.50%||3.55%|
Today's featured rates:
Land O'Lakes CEO Beth Ford charts her career path, from her first job to becoming the first openly gay CEO at a Fortune 500 company in an interview with CNN's Boss Files. More
Honda and General Motors are creating a new generation of fully autonomous vehicles. More
In 1998, Ntsiki Biyela won a scholarship to study wine making. Now she's about to launch her own brand. More
Whether you hedge inflation or look for a return that outpaces inflation, here's how to prepare. More