Zillow: Price Fall Leaves Many Under Water
Home values nationwide declined for the fourth consecutive quarter, down 5.7% year-over-year, the largest year-over-year decline in more than a decade, according to Zillow's 3Q07 Home Value Report.
Launched in early 2006, Zillow.com is a Seattle-based online real estate community where homeowners, buyers, sellers, and real estate agents and professionals find and share free information about homes.
According to Zillow's report, subsequent declines in value have left many homeowners who bought during the last two years (when most local markets reached their peak) with negative home equity, resulting in them owing more than the home is currently worth.
As of Sept. 30, 15.6% of homeowners nationwide who bought in the last year and 17.5% of those who purchased two years ago have current home values that are less than the original mortgage amount. By comparison, 1.8% of those who purchased a home five years ago have seen their equity slide into the negative.
According to Zillow, markets with the greatest proportion of homes with negative equity were those hit hardest by declining values. For example, people who purchased homes in California's Central Valley, parts of Florida and Las Vegas during the past year have seen double-digit depreciation and negative equity rates reach up to five times the national median.
"The decline in home values picked up steam in the third quarter, posting the largest nationwide year-over-year drop in more than a decade," said Stan Humphries, vice president of data and analytics for Zillow. "Continuing depreciation coupled with the downward trend in the size of mortgage downpayments has left many new homeowners 'upside down' on their mortgage, meaning they owe more than the current value of their home.
Despite decreasing home values and increasing incidence of negative equity scenarios, most U.S. homeowners still have positive equity in their homes. In fact, many homeowners who purchased in the last two years have seen overall equity increase since they made their purchase.
The variances and movements in owner equity depend on many factors such as when the home was purchased, how much was put down and net market appreciation.
"Since homeownership is typically a long-term investment, it's important to keep in mind that short-term value declines mostly affect homeowners who either must sell or want to withdraw equity," Mr. Humphries added. "The run-up in home values we saw over the last several years had many homebuyers counting on continued housing appreciation to drive home-equity growth, but the market has proven that this strategy is no longer a safe short-term bet."
Americans who bought a home in the last two years placed a median downpayment of 10% and now have a median of 13% equity in their investment. This is the equivalent of owning only about 200 square feet -- the size of a standard bedroom -- in an average 1,500-square-foot, three-bedroom, two-bath home.
Most homeowners who bought five years ago have the benefit of time and the market on their side. After placing a median downpayment of 11%, these homeowners watched home values grow at an annualized rate of 9.4% over the past five years and now own a median of 41% of their home.
A full comparison of home values in the 83 metropolitan statistical areas can be found in Zillow's national 3Q07 Home Value report at www.zillow.com/quarterlies/QuarterlyReports.htm.
Zillow has also released individual data for each MSA broken out by county, city and ZIP code or neighborhood. The home-equity data Zillow added this quarter can be found on a new tab in the national report, titled "MSA Homeowner Equity."
Homeowners with Negative Equity
Purchased Last 12-Months 16.5%
Purchased Two Years Ago 17.5%
Purchased Five Years Ago 1.8%
Source: Zillow (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/