Home values post largest decline in more than a decade

SEATTLE, WASH.
May 6, 2008 10:42am

More than half of the homeowners who bought their homes at the peak of the housing bubble in 2006 are now underwater on their mortgages, according to a report Tuesday from Zillow.com, a Seattle, Wash.-based online real estate site.

Home values in the first quarter of 2008 fell 1.6 percent from the fourth quarter and 7.7 percent from the year-ago quarter, marking the most significant year-over-year decline in the past 12 years, Zillow says.

Many in the Central Valley might wish they had it so good.

The Stockton metro area has seen one of the nation’s sharpest year-over-year price declines, Zillow says. The 33.5 percent plunge puts the median price for all types of homes at $244,000.

In the Central Valley, home values are down in every market monitored by Zillow. Here are its figures by metro area, with the Zillow-ascribed value for all types of homes and the year-over-year change:

• Hanford-Corcoran, $173,500; -12.8 percent

• Fresno, $204,500; -22.8 percent

• Chico, $239,000; -14.6 percent

• Madera, $212,500; -25.5 percent

• Bakersfield, $196,000; -23.4 percent

• Modesto, $222,500; Year-over-year for all homes not calculated

• Visalia-Porterville, $183,000; -18.5 percent

• Sacramento, $289,500; -20.5 percent

• Merced, 187,500; Year-over-year not calculated for any type of home

• Stockton, $244,000; -33.5 percent

Zillow says the nation’s median home value in the first quarter of 2008 was $213,000. The median has not been this low since the second quarter of 2005, leaving more homeowners who purchased in 2005 or later with negative equity than any quarter previously reported by Zillow.

Not surprisingly, homeowners who purchased during a market peak are at most risk of being underwater on their mortgages, says Zillow. Of homeowners nationwide who purchased when U.S. home values peaked in 2006, one out of every two (51.6 percent) now owes more on their mortgage than their home is currently worth.

For those who purchased in 2005 and 2007, the situation is only modestly better with nearly 42 percent and 45 percent, respectively, facing negative equity.

By comparison, 16 percent of those who purchased in 2004 have negative equity, as do 7 percent of those who purchased in 2003.

For homeowners who purchased in some of the most volatile markets, such as many parts of California and Florida, as well as Phoenix and Las Vegas, rates of negative equity can be twice the national median and, in some cases, as high as 95 percent.

This has been driven primarily by double-digit rates of depreciation, coupled with low median down payments, often less than 5 percent. For example, in the first quarter, Las Vegas home values fell 25 percent year-over-year and nine out of 10 (89.9 percent) homeowners who purchased in 2006, when the median down payment was 2 percent, now owe more than their home is worth.

"Home values in most markets continued to slide in the first quarter, falling back to levels we saw three to four years ago, which has left more homeowners than ever underwater on their mortgages,” says Stan Humphries, Zillow's vice president of data and analytics.

“While the high rate of negative equity has little consequence to owners staying in their homes, it can be devastating to those who need to sell immediately or refinance to avoid ARM resets,” he says. “The inability to secure refinancing is ultimately contributing to the growing rates of foreclosure in many parts of the country.

Mr. Humphries says the magnitude of annualized declines has been increasing during each of the last five quarters, “which is a strong indication that home values still have further to fall so we expect it's going to get worse before it gets better."

Although almost all markets that Zillow analyzed this quarter (130 of 160) reported year-over-year depreciation, nearly 90 percent, or 144 markets, returned positive annualized appreciation over the past five years. In the Miami/Ft. Lauderdale MSA, for example, the annualized appreciation rate over five years was 7.2 percent despite a decline of 18.8 percent from the prior- year quarter. The Oklahoma City MSA, which has not demonstrated the rapid upswing of other markets, delivered 5.6 percent annualized returns over five years and increased 5 percent from the first quarter of 2007. For comparison, the five-year annualized appreciation rate for the nation overall was 4.7 percent.

"We're clearly in a period of market correction. Most major cities, particularly those on the coasts, which bubbled in recent years are the same ones dropping record levels year-over year," Dr. Humphries added. "What's interesting is regardless of whether a market surged in the last few years or remained more steady, like in the South and Midwest, the rates of appreciation over the last five- and 10-year periods are positive and relatively consistent with what we typically expect to see over time -- mid-single digits."