20% of Homes Upside Down
George Ure
Urban Survival
5-6-09
George:
Not that I usually post entire press releases, but some pretty sobering information is contained in the latest out today from real estate outfit Zillow.com: 20 percent of all US homeowners are upside down in their homes - meaning they owe more than the home is worth...
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"SEATTLE, May 6 /PRNewswire/ -- Home values in the United States fell again in the first quarter, posting a year-over-year decline of 14.2 percent to a Zillow Home Value Index(1) of $182,378, according to the first quarter Zillow Real Estate Market Reports(2), which encompass 161 metropolitan areas and cover the value changes in all homes, not just homes that have recently sold.
Declining home values left one fifth (21.9 percent) of all American homeowners with negative equity(3) by the end of the first quarter. By comparison, 17.6 percent of all homeowners owed more on their mortgage than their property was worth in the fourth quarter of 2008, and one in seven (14.3 percent) was underwater in the third quarter of 2008.
Nine consecutive quarters of declines have left eight regions - including the Modesto, Calif., Stockton, Calif. and Fort Myers, Fla. regions - with median value declines of more than 50 percent since those markets peaked. In 85 of the 161 markets covered in the report, the annualized change over the past five years is negative or flat.
But in an early sign of improvement, several hard-hit markets in California, like Los Angeles, San Diego and Modesto, have seen two or more consecutive quarters of smaller year-over-year declines in home values. In total, 17 markets have seen improvement for two or more quarters in year-over-year results.
In the Los Angeles metro area, for example, the Zillow Home Value Index fell 18.9 percent year-over-year, a smaller decline than the 20.8 percent and 20.7 percent declines seen in the third and fourth quarters of 2008, respectively. In San Diego, home values fell 18 percent year-over-year, after falling 19.1 percent and 18.9 percent in the third and fourth quarters of last year. Both markets have been hard-hit by the housing downturn: L.A.'s home values have fallen 33.6 percent since the peak of the market in the first quarter of 2006, and San Diego's have fallen 35.4 percent since that market's peak in the third quarter of 2005.
Meanwhile, potential sellers appear to be holding back until evidence of an improved housing market. In a separate survey of homeowner sentiment(4), one-third (31 percent) of homeowners said they would be at least somewhat likely to put their homes on the market in the next 12 months if they saw signs of a recovering real estate market.
"Slowing declines in select markets are a bright spot or, at least, what passes for one given current market conditions," said Dr. Stan Humphries, Zillow vice president of data and analytics. "Unfortunately, given the magnitude of the current rates of decline, we're still many months away from a bottom even as depreciation slows. Moreover, the additional information we have this quarter on 'shadow inventory,' with one-third of homeowners indicating they would like to put their home on the market if conditions improve, confirms our earlier fears that a bottom in home values could be quite protracted. By our calculations, this could translate into as many as 20 million homes that could seep into the market as prices stabilize, maintaining a constant stream of supply that far outpaces demand, thus keeping prices flat. I'm doubtful that we'll see the bottom until 2010, and thereafter it's increasingly clear that we're likely to have a long bottom before we see meaningful recovery in home values."
In the survey, 12 percent of homeowners said they would be "very likely" to put their home on the market if there was evidence the market was turning around, while 8 percent said they would be "likely," and another 12 percent said "somewhat likely." Of the homeowners who are at least somewhat likely to put their home up for sale, 71 percent would consider increasing home sales in their neighborhoods to be evidence of a market turnaround.
In other data, foreclosures(5) and short sales(6) remained steady in the first quarter. About one in five (20.4 percent) of all transactions in the previous 12 months were foreclosures, compared to 19.9 percent the previous quarter. Short sales made up 11.9 percent of all transactions in the previous 12 months, compared to 10.9 percent in the fourth quarter.
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George:
What makes the Zillow report so interesting is that it continues to feed that cognitive dissonance** which so many people are feeling. You know, the one where the statistics and home sales prices are saying one thing, while officialdom - like Ben Bernanke's testimony yesterday - say something else. Like this, for instance:
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"However, the recent data also suggest that the pace of contraction may be slowing, and they include some tentative signs that final demand, especially demand by households, may be stabilizing. Consumer spending, which dropped sharply in the second half of last year, grew in the first quarter. In coming months, households' spending power will be boosted by the fiscal stimulus program, and we have seen some improvement in consumer sentiment. Nonetheless, a number of factors are likely to continue to weigh on consumer spending, among them the weak labor market and the declines in equity and housing wealth that households have experienced over the past two years. In addition, credit conditions for consumers remain tight.
The housing market, which has been in decline for three years, has also shown some signs of bottoming. Sales of existing homes have been fairly stable since late last year, and sales of new homes have firmed a bit recently, though both remain at depressed levels. Although some of the boost to sales in the market for existing homes is likely coming from foreclosure-related transactions, the increased affordability of homes appears to be contributing more broadly to the steadying in the demand for housing. In particular, the average interest rate on conforming 30-year fixed-rate mortgages has dropped almost 1-3/4 percentage points since August, to about 4.8 percent. With sales of new homes up a bit and starts of single-family homes little changed from January through March, builders are seeing the backlog of unsold new homes decline--a precondition for any recovery in homebuilding. "
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George:
So if you read these two accounts (Zillow and Ben) and find yourself scratching you head wonder "Gee, how can that be?" don't feel alone. It's just the emerging duality** slapping you upside the head. Better get used to it: Plenty more is on order over the rest of this year and into next.
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** "Cognitive Dissonance" meme-spread. |
