Many Borrowers Underwater, Says Zilliow

Zillow.com has come out with a housing report which may well impact some senior owners: Not only are home values falling, but in many cases existing loan balances are now higher than property sale values.

Zillow.com looked at 165 metropolitan statistical areas (MSAs) and found that many recent buyers cannot sell for more than they owe.

“Nationwide,” says Zillow, “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.”

If the idea of getting a reverse mortgage is to get the largest mortgage possible, then falling equity levels are an issue. I suspect that for most seniors the problem is not being underwater because many seniors bought long ago. Instead the concern is that numbers which looked so good in 2006 look less attractive today.

“Although the significant majority of markets reported year-over-year depreciation this quarter,” says Zillow, “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.”

Should anybody be upset because they did not sell or refinance at the top of the market? Probably not. Life is short — and markets move up and down.

For the Zillow report by metropolitan area, press here.

This entry was posted on Thursday, August 14th, 2008 at 5:28 am and is filed under Uncategorized . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.