Negative equity rate continues to drop due to the increase of the percentage of homeowners who have higher mortgages than their home's worth. According to Zillow Negative Equity Report, the rate decreased with a full percentage point in the third quarter of 2015 from 14.4 percent to 13.4 percent.

Underwater homeowners are surfacing making the US housing market to fall off and holding back from full recovery. Now, the declining status of the negative equity rate encourage millions of newly freed homeowners who have not refinanced or been waiting to sell their homes to do something before mortgage rates rise.

Negative occurs when homeowners purchase a house using a mortgage. When the economy starts to fall, home prices will drop. The value of the home then decreases below the amount on the mortgage. This is where negative equity happens.

It is considered as the most persistent reminders of the housing market cash. There are negative equity homeowners who are unable to sell their homes because they owe more in their mortgage than their home's worth. This holds back the market from recovering.

"Negative equity has become almost an afterthought in a handful of the nation's hottest markets, but is holding back the recovery in dozens of large markets nationwide," Zillow Chief Economist Dr. Svenja Gudell said in the interview.

Zillow research reveals that negative equity remains a major problem for the US market to recover. Negative equity should be close to 2-5 percent, but that's not the case today. Survey shows that 22 percent of the homeowners in Las Vegas remain underwater which means that they acquire less than 20 percent equity in their homes.

Among other states in the US, Las Vegas has the highest negative equity rate in the past four years followed by Kansas and Cleveland with 16.6 and 16.8 percent of negative equity. Home sell in this area is slow.

Here is the list of the highest percentage of underwater homeowners according to Zillow.

  1. Las Vegas - 22.1 percent
  2. Chicago - 20.6 percent
  3. Atlanta - 18.6 percent
  4. St. Louis - 17.6 percent
  5. Baltimore - 16.9 percent