NEW YORK - Home values in the United States stabilized in the third quarter and fewer mortgages were underwater, but impending foreclosures could threaten to delay a housing market recovery, real estate website Zillow.com said on Monday.

Stabilization of the hard-hit U.S. housing market is seen as key to an economic turnaround so a delayed rebound would likely prolong a recovery for the world's largest economy.

The amount of single-family homes with mortgages underwater, or in negative equity, dipped to 21 percent in the third quarter, down from 23 percent in the second quarter, as home values stabilized in the short term and more underwater homeowners lost their homes to foreclosure, according to the recent quarter's Zillow Real Estate Market Reports, which encompass the national data and 156 metropolitan areas.

Negative equity has been one of the biggest problems for homeowners, disqualifying many from home loan refinancing and preventing them from selling their homes.

The decline in the percentage of homeowners in negative equity is a positive sign, and is directly attributable to the stabilization of home values from the second quarter to the third, Stan Humphries, Zillow chief economist, said in a statement.

It is also attributable to many homeowners who were previously underwater on their mortgage losing their homes to foreclosure, he said.

U.S. home values posted their 11th consecutive quarterly decline, falling 6.9 percent year-over-year to a Zillow Home Value Index of $190,400.

But the rate of year-over-year decline shrank for the third quarter in a row, meaning home values did not decline as dramatically compared with the third quarter of 2008 as they did in the second or the first quarters, the reports showed.

In addition, the Zillow Home Value Index, which measures the value of all homes and not just those that sold in a particular period, remained relatively flat in the short term, declining 0.4 percent from the end of the second quarter to the end of the third.

The next several months will be critical to the housing market, Humphries said. Previously, we'd been expecting to see increasing foreclosure rates during the real estate market's slow winter season, a confluence of events that would likely drive inventory up and prices down.

But with the extension of the $8,000 first-time home buyer tax credit and a new $6,500 credit for repeat homebuyers, Humphries said the market could see a bump in demand that could partially offset the increased supply of foreclosed homes on the market.

More than one-fifth, or 21.4 percent, of all sales in September were foreclosure re-sales, or REO sales, compared to 14.7 percent a year ago. Merced, California had the highest rate in the country, at 74.2 percent, followed by Stockton, Madera and El Centro, California and Las Vegas, Nevada, the reports showed.

Most markets are no longer seeing accelerating declines in home values, it said. While 116 metropolitan areas experienced on-year declines in home values in the third quarter, only nine metropolitan areas saw home value declines accelerate from a year ago.

Home values increased in 24 of 156 MSAs Zillow tracked, and remained flat in an additional 16, the reports showed.

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