More than 28 percent of U.S. homeowners with mortgages owed more than their properties were worth in the first quarter as values fell the most since 2008, Zillow Inc. said recently. Homeowners with negative equity increased from 22 percent a year earlier as home prices slumped 8.2 percent over the past 12 months, the Seattle-based company said. About 27 percent of homes with mortgages were “underwater” in the fourth quarter, according to Zillow, which runs a website with property-value estimates and real-estate listings.
Home prices fell 3 percent in the first quarter and will drop as much as 9 percent this year as foreclosures spread and unemployment remains high, Zillow Chief Economist Stan Humphries said. Prices won’t find a floor Nationally until 2012, he said.
“We get tired of telling such a grim story, but unfortunately this is the story that needs to be told,” Humphries said in a telephone interview. “Demand is still quite anemic due to unemployment and the fact that home values are still falling. And that tends to make people more cautious about buying.”
The U.S. unemployment rate rose to 9 percent in April, up from 8.8 percent in March, the Department of Labor reported May 6. Home prices have fallen almost 30 percent from their
June 2006 peak, wiping out more than $10 trillion in equity, including $667.5 billion in the first quarter, Humphries said.
Remember, the Government doesn’t count the people who haven’t looked for work in the last 90 days in their numbers, or the millions of TEMP workers, so the unemployment rate is actually much higher. Some leading economists suggest the real rate is closer to 18%.
Dropping Home Values
Other analysts also expect homes to continue losing value this year. Oliver Chang of Morgan Stanley expects prices to fall as much as 11 percent, according to an April 25 report. Prices may fall “another 5 or 10 percent,” Robert Shiller, an economics professor at Yale University, told Fox Business on April 26. Prices will continue falling as more houses are lost to foreclosure, flooding the market with distressed properties, Humphries said.
SIGNS OF LIGHT
Foreclosures fell to the lowest level in three years in the first quarter as lenders worked through a backlog of flawed paperwork, according to RealtyTrac Inc., an Irvine, California- based real estate information service.
Las Vegas Highest
In Las Vegas, 85 percent of homes with mortgages were underwater, the most of any city tracked by Zillow. Other metropolitan areas in the top five were Reno, Nevada, at 73 percent; Phoenix at 68 percent; and Modesto, California, and Tampa, Florida, both at 60 percent. Zillow has tracked negative equity since the first quarter of 2009, when more than 22 percent of homes were underwater.
Property values rose in only three of the 132 regions tracked by Zillow: Fort Myers, Florida, where they gained 2.4 percent; Champaign-Urbana, Illinois, up 0.8 percent; and Honolulu, up 0.3 percent. Fort Myers prices increased after falling more than 60 percent from their 2006 peak because they “over-corrected,” Humphries said.
Prices were propped up in 2009 and early 2010 by federal stimulus programs, such as tax credits worth up to $8,000 for first-time homebuyers, Humphries said. That program “was stealing demand from the future,” weakening shoppers’ appetites now even as housing affordability is at its three-decade high, he said.
Nearly 70 percent of all homes with a mortgage in Phoenix area were under water at the end of 2010, according to Zillow.com. The company’s latest data shows 69.9 percent of homes the Valley had negative equity in the fourth quarter, while the national negative equity rate is 27 percent.
The Phoenix housing market has suffered severely since the onset of the Great Recession. A separate housing report from CoreLogic also shows a large percentage of underwater mortgages in the Phoenix area. Accelerating home value declines, as well as a slowdown in the nation’s foreclosure rate following the late-2010 robo-signing controversy, contributed to the increase in negative equity.
Phoenix-area home values dropped 11.6 percent to an average of $129,300 at the end of 2010, according to Zillow.com. That marks a 53.6 percent drop from the Phoenix real estate market’s peak. It is evident that the LOW END market cannot go much lower. However, the HIGH END homes still have a lot of room to fall depending on economic factors.
THE UPSIDE IN ALL THIS
Here in Phoenix, there is a plethora of decent homes at super low prices and investors are swooping in to buy at auction and put contractors to work fixing up the homes. Everywhere you turn you see renovations. This is great sign of recovery and the opportunity to find a home on the HUD website or http://www.Homepath.com ( Fannie Mae’s online data base ) or http://www.Homesteps.com ( Freddie Macs online database ) is just a few clicks away.
Real Estate has always cycled and it appears to many of us that we are approaching the “BOTTOM” if we are not already there. Do your research, choose wisely, reduce your debt, lower your expenditures and soon you’ll be living the dream again. There is light at the end of this tunnel. The key for each of us is…what have we learned from the last 5 years?