21.5 percent of all residential properties were underwater at the end of Q4 2012, according to CoreLogic's latest report.

10.4 million mortgages were still in negative equity – where the homeowner owes more on his mortgage than the home is worth.

This is however down from 10.6 million or 22 percent at the end of Q3 2012.

The value of negative equity fell to $628 billion in Q4, from $670 billion the previous quarter. Moreover, 200,000 returned to positive equity, bringing the total for last year to 1.7 million.

“There is certainly more to do but with fewer borrowers underwater, the fundamentals underpinning the housing market will continue to strengthen,” said Anand Nallathambi, president and CEO of CoreLogic in a press release. “The trend toward more homeowners moving back into positive equity territory should continue in 2013.”

The decline in negative equity certainly bolsters the housing recovery, since people in negative equity are more likely to default on their mortgage payments. But at 10.4 million the pool is still large, and sandy states continue to struggle.

Here are some details from the report:

Nevada had the most mortgages in negative equity at 52.4 percent, Florida followed with 40.2 percent, Arizona had 34.9 percent in negative equity, Georgia had 33.8 percent, and Michigan had 31.9 percent. Together these states account for 32.7 percent of overall negative equity.

In terms of metros, the five with the highest negative equity were Tampa-St. Petersburg-Clearwater, Florida; Miami-Miami Beach-Kendall, Florida; Atlanta-Sandy Springs-Marietta, Georgia; Phoenix-Mesa-Glendale, Arizona; and Riverside-San Bernardino- Ontario, California.

This chart shows negative equity, and near negative equity by state: