It's Called Negative Equity

Posted by: Chris Palmeri on August 12, 2008

zillow.jpgReal estate Web site Zillow.com released data today suggesting that the average U.S. home fell 10% in value in the past year, to $207,000. That was the largest year-over-year decline in twelve years. Homes prices are now back to 2004 levels, according to Zillow’s calculations, which are based on analysis of 165 cities.

Some other bad news in Zillow’s numbers: One in four homes sold in the past year have been sold at a loss. In some markets, such as California’s Central Valley, more than half of all home sales were foreclosures. In Washington, D.C., foreclosures represented 17% of sales. In New York, where the market remains strong, just 3% were foreclosures.

According to Zillow, nearly one-third of all Americans who bought a home since 2003 now owe more on their mortgage than their house is worth. That’s called negative equity. It’s even worse for those who bought in 2006, 45% of them are underwater.

Zillow burst on the scene in 2006 with its “Zestimates” of what people’s homes are worth. Looking up the numbers soon became a national past time and the subject of water cooler chat. Zillow’s estimates have come under criticism for their accuracy however. And now that prices are falling, will people still be interested in seeing what Zillow says their house is worth?

Reader Comments

Snoz

August 13, 2008 2:57 AM

Zillow's 10% decline is more generous to California homeowners than they deserves. As to Zillow's claim that prices are back to 2004, that is completely false in California where prices more than double during the real estate feeding frenzy. A 10% drop in price is nothing. So far in California prices have drop over 25% and still they are too high and homes are foreclosing left and right. There are still hundred of thousands of real estate flippers who bought at inflated prices and they are wishful thinking that real estate prices will recover soon. These die-hard California flippers still think they can earn easy money without working. They have all bought the DVD or VHS on "How to buy real estate for no money down" from land scammers and believe the dogma that real estate prices will never go down; millionaires are made thru real estate "investment" and "you too can get rich quick without hardly working." California Flippers and landscammer have lost their real estate bets along with their souls. Most Californians are living in a fantasy because California is now basically bankrupt due to the real estate speculation bust that ultimately failed to provide the anticipated tax revenue. California is over $16bil in the red and the state has mortgaged itself to the max. Short of declaring a bankruptcy, California's other option is a hugh tax increase to fund spending programs that special interests have passed under Bond Measure referendums. How long California can keep scamming the rest of the Nation depends on how easy-money can keep coming. With the collapse or imminient collapse of big Wall St banks, the days of easy-money can be countered on your one hand. With liquidity crisis spreading faster than a California wildfire, California is doomed and its flippers and landscamer will be reduced to ashes to ashes. When this real estate calamity is finished, the California phoenix will not rise ever again.

Sarahm

August 14, 2008 2:49 PM

Hi Chris--

Thanks for the post. In case any of your readers are interested in checking out the data specific for their area-- they can find it all here: http://www.zillow.com/reports/RealEstateMarketReports.htm. As we all know, real estate is local, and thus it's pretty interesting to learn what's going on in your specific city, or even your neighborhood. Or depressing, depending.

nada

August 20, 2008 1:41 PM

I am curious as to why all banks are not forced to negotiate the short sale offers on thier desks prior to being allowed to write off a dime. I have been told by friends in the appraisal industry, that of the homes that were sold at auction that had offers sitting at the bank, these sold for appx 35% less then the offer that was not accepted. It would seem to me that it would make more sense to write down 35-40% then 100%. If banks were forced to negotiate these sales, homes would be selling, and inventories would start going down. This would help stabilize the market faster.

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About

BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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