November 10, 2010

Size of Home Price Decline Reaches Depression-Era Depths

Underwater mortgages are also rising, Zillow reports

In the midst of relatively good news on other economic fronts, one area is worsening: home values. According to Zillow Real Estate Market Reports on Wednesday, home values fell for the 17th consecutive quarter during Q3, approaching Great Depression-era declines.

During the Depression, home prices dropped 25.9% in five years. In today’s market, prices are down 25% from their peak in June of 2006, covering four-and-a-half years. Zillow’s Home Value Index dropped 4.3% in Q3 year-over-year, and is down 1.2%, to $179,000, from Q2.

(See full index covering 25 cities at end of story.)

Coupled with that bad news, more homeowners are underwater. Nearly a quarter of single-family homeowners who have mortgages, or 23.2%, owed more on their homes in Q3 than those homes were worth. This is the highest rate of underwater mortgages since Zillow started negative equity tracking in 2009. That also is up, rising from 22.5% in Q2.

Eleven markets tracked by Zillow had negative equity that was higher than 50%, with as many as four out of five single-family home mortgages underwater in some markets. Las Vegas and Phoenix had the highest negative equity, at 80.2% and 68.4%, respectively.

In the third quarter, home values dropped in 77% of markets covered in Zillow’s reports; even some markets that had started to see increases or that had stabilized were either flat or reentered negative territory.

Dr. Stan Humphries, Zillow’s chief economist, said in a statement, "While not unexpected, the unceasing declines in home values signal that we're in for a long, bleak winter of continued troubles for the housing market. The length and depth of the current housing recession is rivaling the Great Depression's real estate downturn, and, with encouraging signs fading, will easily eclipse it in the coming months.”

Humphries added, "The high percentage of homeowners in negative equity continues to be troubling, in that it represents a huge number of people who are not only more vulnerable to foreclosure, but who are essentially trapped in their current homes and are prevented from selling and buying a new home. This has profound implications for future demand and will be a millstone around the neck of the housing market."

If that’s not enough gloomy news, foreclosures are also at an all-time high, with 1.2 of every 1,000 homeowners in foreclosure in September. Those homes that were previously foreclosed on in the past 12 months hit a near peak for sales in September; foreclosure resales constituted more than one fifth (20.1%) of all sales. That’s almost as high as the all-time high of foreclosure resales, which was 20.5% in March of 2009. More than 27.3% of homes sold for a loss in September; February of 2010 saw the all-time high for homes sold for a loss, at 27.7%.

Zillow Home Value Index

Largest 25 Metropolitan Statistical Areas Covered by Zillow

Q3 2010

QoQ Change

YoY Change

Change from Peak

Negative Equity*

United States

$179,900

-1.2%

-4.3%

-25.0%

23.2%

New York

$362,000

-0.8%

-3.3%

-20.7%

13.0%

Los Angeles

$417,000

-0.8%

2.3%

-31.1%

17.4%

Chicago

$189,600

-2.6%

-6.6%

-30.1%

32.9%

Dallas

$131,300

-2.1%

-1.8%

-8.4%

n/a

Philadelphia

$203,400

-1.7%

-3.1%

-13.5%

14.2%

Miami-Fort Lauderdale

$143,300

-4.2%

-15.2%

-53.3%

42.0%

Washington

$316,500

-2.6%

-3.1%

-27.3%

23.6%

Atlanta

$134,200

-5.3%

-13.2%

-26.0%

37.6%

Detroit

$81,300

-2.8%

-10.8%

-48.3%

30.0%

Boston

$328,600

0.1%

1.6%

-17.5%

9.5%

San Francisco

$512,700

-1.5%

1.5%

-27.4%

20.2%

Phoenix

$131,400

-4.1%

-12.8%

-53.1%

68.4%

Riverside, Calif.

$193,300

0.0%

0.9%

-52.0%

48.1%

Seattle

$273,500

-4.3%

-10.6%

-28.2%

27.7%

Minneapolis-St. Paul

$177,200

-3.5%

-7.8%

-28.2%

36.8%

San Diego

$370,600

-0.7%

4.2%

-31.1%

19.6%

St. Louis

$138,100

-2.4%

-3.4%

-12.3%

22.2%

Tampa, Fla.

$115,700

-1.9%

-9.1%

-46.3%

46.8%

Baltimore

$231,800

-2.7%

-8.6%

-22.2%

20.8%

Denver

$206,100

-2.6%

-2.7%

-11.4%

34.6%

Pittsburgh

$110,300

2.6%

1.6%

-1.4%

6.3%

Portland

$223,500

-2.6%

-9.1%

-24.3%

25.2%

Cleveland

$118,500

-1.0%

-2.4%

-17.7%

33.0%

Sacramento

$227,500

-2.1%

-3.2%

-44.9%

39.6%

Orlando

$123,400

-1.9%

-11.9%

-52.1%

64.2%

*Negative equity refers to the % of single-family homes with mortgages.

To read more about home values, go to AdvisorOne.com.

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