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Number of homes with negative equity shrinks

The number of homes with negative equity decreased in the third quarter of 2010.

The number of homes with negative equity decreased in the third quarter of 2010.

The amount of American homes with negative equity decreased in the third quarter, but declines in home prices may halt this positive trend, according to new CoreLogic data.

The real-estate data company showed that 10.8 million properties with mortgages were in negative equity at the end of the third quarter, which is down 23 percent from 11 million during the second quarter. These numbers marked the third straight quarterly decline in negative equity for residential properties, meaning some people may have an easier time moving out of their current home.

Although the negative equity is slightly declining, economists note that more home price declines are stalling a housing market recovery. Mark Flemming, chief economist with CoreLogic, says,"Negative equity is a primary factor holding back the housing market and broader economy," he commented. "The good news is that negative equity is slowly declining, but the bad news is that price declines are accelerating, which may put a stop to or reverse the recent improvement in negative equity."

CoreLogic suggests that the decline in negative equity was due to foreclosures of homes with severe negative equity rather than an increase in home prices.

Home-buyers with hopes of moving into a lower-priced home may have options, as home prices in 2011 are expected to drop. Case-Shiller expects a 7.1 percent decrease in home prices into the second quarter of 2011.