Following on Zillow's recent database expansion to 67 million Zestimates on 80 million homes, the Zillow Home Value Report has been expanded to cover 125 Metropolitan Statistical Areas (MSAs), including a national report, and details for corresponding counties, cities and neighborhoods.
The continued decline in home values means many U.S. homeowners saw equity slip away while more homeowners were pushed into negative equity situations, meaning they owe more on their mortgage than the home is currently worth. Nationwide, those at most risk of being underwater on their mortgage are those who bought in the last two years when most markets peaked. Of those who bought in 2006, 39 percent now have negative home equity as do 30 percent of those who purchased in 2007. By comparison, only 3 percent of those who purchased five years ago, in 2003, and less than one percent of all homes in the U.S., regardless of when they were purchased, have negative equity(3).
The rates of negative equity are typically higher in markets that have had significant value declines and relatively low median down payments. Parts of California, Florida, Nevada and Arizona, where the median down payments were zero to 5 percent during the last two years and year-over-year value drops in the fourth quarter were in the double digits have negative equity rates two to three times the national median. For example, in Las Vegas, where homeowners saw values drop 13.8 percent year-over-year, more than half (57.6%) of those who bought in 2007, when the median down payment for the area was 5 percent, and nearly three out of four (72.5%) who bought in 2006 with a median down payment of zero, are currently underwater.
"With consecutive declines over the past five quarters, we haven't seen the housing market bottom yet, and it may very well get worse before things get better. Even many markets that have been largely insulated from recent declines, like some in the Pacific Northwest, reported notable value declines in the fourth quarter," said Dr. Stan Humphries, Zillow vice president of data and analytics. "As home values have slid down further, the median amount of equity people have in their homes has declined and more U.S. homeowners are now underwater, owing more than the current value of their home."
While most homeowners still have positive equity in their homes, the amount of equity in most areas deteriorated in the fourth quarter. In fact, many of those who purchased in the last two years now have less equity than their original down payment. Homeowners who purchased in 2006 and 2007 placed a median down payment of 10 percent and now own a smaller fraction of their investment -- just 5 percent and 9 percent equity(4) respectively as of December 31, 2007. In contrast, those who purchased in 2003, after placing a median down payment of 10 percent watched the market grow at an annualized rate of 6.9 percent and now own a median of 37 percent of their home, without factoring in any payments toward principal.
"It's important to remember that value declines and negative equity situations are largely unrealized effects for most homeowners unless they are in a situation where they must sell or withdraw equity immediately," added Dr. Humphries. "The decline in values, combined with the recent rate cuts by the Fed should make entering the market more attractive to would-be buyers, but we may not see any effects until the spring when the home shopping season usually kicks off."
