WASHINGTON, USA

NEARLY 10 million Americans remain financially trapped by homes worth less than their mortgage debts — an enduring drag on the US economy almost seven years after the housing bust triggered the Great Recession.

During the first three months of this year, 18.8 per cent of homeowners with a mortgage — 9.7 million — owed more on their loans than their properties would sell for, according to online real estate database Zillow. Though that was an improvement from the 25.4 per cent figure of a year ago, the share of such “underwater” homeowners is about four times the historic average.

An additional 18.1 per cent of mortgage holders were “effectively” underwater: They had equity, but the proceeds from selling their home would be too low to recoup the sales costs and also put a down payment on a new property.

The consequence is that few Americans are putting their homes on the market, thereby limiting the economic growth made possible by sales. Because of the shortage of homes being listed, bidding wars have inflated prices in parts of the country to levels that squeeze out many first-time and middle class buyers.

The problem is most pronounced among starter homes with prices averaging around US$100,000, 30.2 per cent of whose owners are burdened by underwater mortgages, sometimes called negative equity.

“The unfortunate reality is that housing markets look to be swimming with underwater borrowers for years to come,” said Stan Humphries, chief economist at Zillow.

The share of mortgage holders with negative equity is projected to drop to 17 per cent at the start of next year, according to Zillow.

Several major US metro areas are stuck with residents who have high rates of negative equity. In Chicago, almost 45 per cent are underwater or effectively underwater. The rate is 53.1 per cent in Atlanta, 50.6 per cent in Las Vegas, 46.6 per cent in Charlotte, 44 per cent in St Louis, and 43.2 per cent in Tampa.

Sales of existing homes have slowed after strong growth in the first half of 2013. Americans bought homes at a seasonally adjusted annual rate of 4.59 million in March, the lowest level since July 2012, according to the National Association of Realtors. It was the seventh drop in eight months.

Nationwide, the median sales price in March was US$198,500, up 7.9 per cent year-over-year.

There were nearly two million homes for sale at the end of March. But at the current sales pace, that’s enough to last only 5.2 months, below the six months’ supply that’s considered normal.

The Realtors will release April sales figures on Thursday. Economists surveyed by FactSet expect a slight 2.2 per cent increase in the annual sales rate to 4.69 million.