Seriously delinquent U.S. mortgages fell to the lowest level since 2008 as employment improved and recovering housing demand enabled struggling borrowers to sell without losing money.

Home loans that were more than 90 days behind or in the foreclosure process fell to 6.78 percent of mortgages in the third quarter from 7.03 percent in the previous three months, the Mortgage Bankers Association said in a report. The rate was 7.73 percent a year earlier.

Delinquent borrowers are catching up on payments or finding alternatives to foreclosure as the U.S. economy improves, easing a threat to the housing recovery. The unemployment rate was 7.9 percent in January, the fifth straight month below 8 percent. A tight supply of homes on the market is driving up prices and helping struggling owners find buyers.

“There’s definite movement in the right direction,” Michael Fratantoni, the trade group’s vice president of research and economics, said in a phone interview from Dallas. “We’re not back to normal yet, regardless of how you define that.”

Foreclosure starts fell to 0.7 percent of all loans during the quarter, half of what they were at the peak of the crisis in 2009. A “normal rate” before foreclosures swelled was about 0.5 percent, Fratantoni said.

The share of mortgages in foreclosure fell to 3.74 percent from 4.07 percent the previous quarter, the biggest drop in the association’s records.

Rising Prices

U.S. home prices rose 8.3 percent last year to an average $229,608, the biggest year-over-year increase since May 2006, according to CoreLogic Inc.

Rising prices helped 1.9 million underwater U.S. homeowners — people who owe more on their mortgage than their homes are worth — get back to positive territory, according to a report today by Zillow Inc. Almost 1 million more owners will return to positive equity this year as home prices rise, the Seattle-based real estate sales service said.

Higher prices provide homeowners struggling to pay their mortgage an alternative to foreclosure, said Jay Brinkmann, chief economist of the Mortgage Bankers Association.

“Chances are, as home prices go up, they can simply sell,” Brinkmann said in a telephone interview.

Even with rising prices, an estimated 13.8 million homeowners with a mortgage owed a collective $1 trillion more than their homes were worth at the end of 2012, Zillow said.

The overall U.S. mortgage delinquency rate — the share of mortgages at least one month late — dropped to 7.09 percent in the fourth quarter on a seasonally adjusted basis from 7.4 percent in the previous three months, the Mortgage Bankers Association said.