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20% of Homeowners Underwater According to Zillow
By JLP | May 6, 2009
More Than One in Five Homeowners Underwater: Zillow
U.S. home values posted a year-over-year decline of 14.2 percent to a Zillow Home Value Index of $182,378, resulting in a total 21.8 percent drop since the market peaked in 2006, according to Zillow’s first-quarter Real Estate Market Reports, which encompass 161 metropolitan areas and cover the value changes in all homes, not just homes that have recently sold.
U.S. homes lost $704 billion in value during the first quarter and have depreciated $3.8 trillion in the past 12 months, according to analysis of the reports.
Declining home values left 21.9 percent of all American homeowners with negative equity by the end of the first quarter, Zillow said.
Of course this is only a big deal to those homeowners (maybe the wrong term to use here) who need to refinance or sell their home. So I think this statistic is exagerates the situation.
The article did say that some areas have seen home price declines of 50%. All this means is that those home prices were grossly overvalued in the first place. They always forget to mention that little detail.
Eventually prices will get to the point where people will start buying again. It’s already happening in some parts of the country. Those who sat on the sidelines and watched while people went crazy, are going to reap the rewards. Isn’t capitalism awesome? I love it!
Topics: Housing Market | 7 Comments »
May 6th, 2009 at 3:02 pm
I think that Zillow is full of it and looking to advertise itself, plus the numbers don’t tell the full story.
I moved 1 1/2 years ago. Between all the fees, I took an 8% shave on my selling price, which, BTW, was 110% over the price I paid originally. I increased my mortgage by 20% to pay for repairs to the new house, but I still kept my LTV ratio below 50% because the house I bought wasn’t much more expensive than the one I sold.
Now, Zillow is telling me my new house as well as my old one dropped about 20% in value. So, since everything is about the same, did I really “lose” money on my new house, or on my old house, since that’s where the bulk of my equity came from?
May 8th, 2009 at 3:26 pm
@Jimmy37: I don’t think Zillow is trying to say that you lost money — they are making the extrordinary claim that 22% of all homeowners owe more on their houses than they are worth.
Owing more on the asset than what it is worth is No Bueno! This means that these mortgages that are upside-down are at an extremely high risk of defaulting (compared to mortgages that the owners have a 20% equity stake, for example).
22% of americans could mail their house keys to the bank, and be exactly no worse off financially. The banks, on the other hand, would be destroyed — yet for some reason the stock market rallies (time to sell?).
May 8th, 2009 at 4:29 pm
I find this stat believable.
If you bought a home anytime in the last 4-5 years then there is a good chance it has lost value. Most people don’t have high downpayments so any loss in equity could put someone underwater. There were about 20-25M homes sold in 2005-2008. Theres about 116M households and about 30% of people rent so thats about 81M homeowners. Course it doesn’t say HOW MUCH people are underwater. Some might be underwater $1 and still be counted as underwater.
May 9th, 2009 at 10:46 pm
JLP,
There were a lot of speculators, like here in Las Vegas, who got caught in the bubble and are now upside down on their properties and can easily just walk away from them. Then there are regular homeowners in the same dilemma who have many other things to consider before sending in the keys. Yes, the marketplace will eventually bring supply and demand back to a workable balance. Preferably rather soon.
May 11th, 2009 at 10:44 am
@JLP — With a 30-year note, after 4-5 years, the principle balance is reduced by about 6%. With a 15-year note, on the other hand, the balance would have been reduced by 18% (4 years) to 25% (5 years) in the same timeframe.
People who purchased homes recently and used a 15-year mortgage, are more than likely not upside-down.
May 11th, 2009 at 10:50 am
LOL,
You may be right but you’re also not mentioning that these people paid a lot more in payments over these 5 years.
I would also be willing to bet that the majority of people who bought homes with conventional mortgages, be they 30-year or 15-year, are probably in good shape (unless they have lost their jobs or something like that).
It was the people who used risky financing that are having problems now because they CAN’T reset their mortgages because they are underwater.
May 12th, 2009 at 5:26 am
I think it’s all swings and roundabouts. I mean, some people win, some people lose and you’re either lucky or you’re not (in some cases clever).
Also, none of this matters if your house is worth lower than what you paid so long as you don’t sell it in the current climate. Of course, it’s different for those who are told to sell it and that’s sad but life goes on.