Not surprisingly, homeowners who have experienced the most significant value declines are at most risk of being underwater on their mortgages - meaning they owe more than their home is currently worth. Nationwide, for those who purchased their home since the beginning of 2003, nearly one in three (29.1%) now have negative equity. The highest rates of negative equity are among those who purchased in 2006, when most markets peaked, as nearly half (45%) of those buyers across the U.S. now face negative equity after placing a median down payment of 10 percent. The rate is nearly double for those in the Stockton MSA where nearly every homeowner (95%) who bought in 2006 - with a median down payment of zero - is underwater.
The increasing rates of negative equity coupled with rising rates of foreclosures continue to have an impact on the macro real estate market. To help monitor these effects, Zillow has added new measures to its reports under the label Distress Signals, which tracks, by quarter, the percentage of homes sold for a loss and the percentage of homes sold in foreclosure, dating back to 2003. Nationwide, nearly one in four (23.7%) homes sold during the past year sold for a loss while nearly 15 percent of sales were foreclosures. In parts of California, more than 60 percent of homes sold in the past year were for a loss while homes sold in foreclosure exceeded 50 percent. In New York- Northern New Jersey-Long Island MSA, which has the lowest rates of foreclosure among the markets monitored by Zillow, the percentage of homes sold for a loss since the second quarter 2007 is 8.8 percent and the percent of homes that sold in foreclosure is 3 percent.
In many markets, the rate of these Distress Signals is two to three times what was reported just a year ago. For example, 32.7 percent of homes sold in the second quarter were sold for a loss and 18.6 percent were foreclosure sales compared to the year-ago quarter when the rates were 12.2 percent and 7 percent respectively. In the San Francisco-Oakland-Fremont MSA, for example, nearly half (48%) of all homes sold in the second quarter recorded a loss while 34.3 percent were foreclosed; however, just a year ago, the rates were 14.9 percent and 10.7 percent respectively.
"The second quarter is the sixth consecutive quarter of home value declines and we see little promise of turnaround in the short-term as the rates of decline have yet to slow and, in fact, actually accelerated in many markets," said Dr. Stan Humphries, Zillow's vice president of data and analytics. "The high rates of negative equity are having a direct effect on home sales figures as we've seen considerable growth in foreclosure transactions and homes selling for a loss. Unfortunately, while there are a few bright spots - like Pittsburgh, Oklahoma City and Austin that reached record-high values - most markets are likely to remain in negative territory for the next few quarters given the magnitude of current year-over-year declines."
Although the significant majority of markets reported year-over-year depreciation this quarter, 148 - or 90 percent - returned positive annualized appreciation over the past five years and every market has shown positive appreciation over the past 10 years. For the nation, these rates are 4.4 percent and 6.5 percent respectively. For example, despite a 21.4 percent year-over-year decline in median values, the Los Angeles-Long Beach-Santa Ana MSA returned annualized appreciation of 4.8 percent over the past five years and 9.1 percent over past 10 years. The Oklahoma City MSA, which has not demonstrated the rapid upswing of other markets, delivered a modest 1.1 percent gain from the second quarter of 2007 and has returned 6.1 percent annualized returns over five years and 5.7 percent over 10 years.
Interestingly, homeowners seem to be oblivious to the reality of the housing market as it pertains to their individual home. As reported last week through the Q2 Zillow Homeowner Confidence Survey, 62 percent of homeowners think their home value increased or stayed the same in the past year and 75 percent expect their home value to increase or stay the same in the next six months. Based on the Q2 Real Estate Market Reports, 77 percent of homes actually declined in value over the past year, a slight increase from the 75 percent that declined year-over-year in the first quarter.
