Real Estate Blog - SPENCER RASCOFF, COO OF ZILLOW.COM UNDERSTANDS NEGATIVE EQUITY!

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SPENCER RASCOFF, COO OF ZILLOW.COM UNDERSTANDS NEGATIVE EQUITY!

Spencer Rascoff was interviewed on Fox Business a few minutes ago.

SPENCER RASCOFF WAS SPECTACULAR!

SPENCER UNDERSTANDS THE INSIDIOUS NATURE OF NEGATIVE EQUITY and what it's doing now and will be doing in the future to the housing industry for some years to come.

I don't yet see the clip on the Fox Business web site, but much of the interview is in Spencer's latest post:

"There is a massive amount of "shadow inventory" waiting to come on line. * * * * In short, there might be another ~20 million homes waiting in the wings to come onto the market as we see signs of a recovery." Read more. . . .

The interview was very informative. I'm glad to see this critical information getting into the media.

On a couple of occasions, the interviewers tried to shift the blame for the home owners, but Spencer deftly refocused the matter on the market. Spencer understands that negative equity is an insidious force that is harming, not only home owners, but the entire economy. He understands further, that it has a long way to go before we even begin to recover.

More information from the FoxBusiness web site: http://online.wsj.com/article/SB124156804522089735.html

Video clip from CNBC interview:

http://www.cnbc.com/id/15840232?video=1115418092&play=1

Video clip from Fox interview:

http://www.foxbusiness.com/search-results/m/22235381/study-homeowners-mortgages-lost-value.htm#q=rascoff

Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988, E-mail.

Posted by Lenn Harley, Real Estate Broker, Maryland & Virginia on 05/06/2009 11:22 AM

Comments (38)

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38 Comments on SPENCER RASCOFF, COO OF ZILLOW.COM UNDERSTANDS NEGATIVE EQUITY!

MAY

Thank you Lenn!

As soon as the Fox Business and CNBC clips post online, I'll add links here. I got a good chance in the Fox Business piece to explain why negative equity matters. It's incredible to me how many people -- including those in the media -- don't grasp the importance of this critical issue.

Spencer. I have been harping about negative equity and the damage it will cause to our economy for the past two years.

You did a masterful job. Congratulations.

Sadly, as 15-20,000,000 home owners are effectively taken OUT of the consumer economy, the damage will simply escalate.

The "big guys" are all predicting when the economy will "come back".

HA!, they haven't a clue.

I'll check this out - on a side note we are starting to see more multiple offers around here. Has to worth something :)

I keep telling my husband when I look up Sheriff's Sales and see them cancelled that our bottom is still to come, and that more inventory will be hitting us within the next 3-9 months for sure.

Steve. Nice and we are too. We just got one buyer ratified for the sixth contract he wrote.

However, our multiple offers are NOT the folks about whom Spencer and I write. It's the millions of families who bought in the 2003-2006 years or who took equity lines and then, when the market crashed when the perfidy of the financial houses hit, that are upside down and CANNOT SELL.

They are out of the housing market, out of the consumer market except for essentials, out of the education market unless their children work or have ed grants, out of the auto markets (we see what the fall out from that is), out of the consumer economy that drove our econony for the past 30 years.

These home owners work to make their mortgage payments. There's nothing left.

A few are beginning to understand.

Hi Lenn~ The sheer numbers of people who are upside down in their mortgages is surely going to escalate. Some of those people ae hanging on for dear life and praying for a way out. They can only hang on for so long......

Lenn, I had just read and commented on Spencer's blog when I saw yours. You both are so right on, it is devasting what has happenned to these folks. I see it in my home town in the SF Bay Area every day. I see it in the trickle down effect it has had on those who never had the money even during the boom to own a house - those folks don't have jobs or have gone part time or underemployed and now can't even pay their rent.

I just commented on Spencers post, I wish I would have read this one first. I'm more worried about the bank owned that will be hitting the market this summer.

After reading your blog I understand what he was saying. These people have no equity so many won't be in the housing market. They still have to live somewhere though so I still think that even when the shadow inventory comes online housing values will hold steady and the rate of decline in many markets will slow significantly.

We still have a few more "interesting years ahead of us.

The numbers and the geographics are simply stunning and are affecting us all. I wonder what homeownership will look like 5 years from now.

Lenn and Spencer- You are so right. Thank you Spencer for getting the word out in the media and keeping them focused on the market not the home owners.

Hey Lenn!

When this comes online I would love to watch it, thanks for the information. I will be back later to check it out, and I believe if you are for it, it must be good! Thanks,

-Lisa

Lisa. I posted a link to the FoxBusiness site with more info. If they put up a video, by all means watch it. It was very good and Spencer was very focused on the problem.

Kim. Interestingly a few questions from the interviewers, Degan WhatsHerName and Brian Sullivan tried to make a swipe and home owners, but he got them back on track.

Susan. What will our country and our economy with 15-20% of consumers out of the market look like?

Kate. Indeed. The market is not going to be viable for many years to come.

Joanne. Right you are. Folks are hurting all down the line; those who are struggling to keep their homes and those who have lost everything and have no credit.

Vickie. Right. They can only hold out so long. Then they will become a statistic and there'll be another short sale or foreclosure.

Heather. Yes, there are many more homes to come on the market.

Lenn I will have to keep an eye out for that video clip, I would like to see it.

Great post. Even in Atlanta...I see homes coming on an off the market. They appear to be sold then they test the waters again. All you have to do is drive through a neighborhood and know that something is amiss.

So right, Lenn. I put some numbers together for 1 popular zip code here in Orlando where nearly 5,000 homes were purchased from 2002-2008. ALL of those homes are currently underwater. Anybody who bought in those years and has a need to move for a job or other life-changing event will have to sell as a short sale. Those houses represent $1.3 Billion in original purchase value. A year ago, only 2,000 homes purchased mid-2005 through 2007 were underwater, representing $600 Million.

I put other numbers together in a what-if scenario. I made certain assumptions like 1) we will reach the bottom this year, 2) once we reach bottom, houses will begin to appreciate at normal levels.

Even if this blue-sky scenario were to happen, the market wouldn't fully correct until 2016.

Hi everyone. Here's the CNBC clip from this morning. It focuses more on "shadow inventory" than negative equity, but it's still interesting.

And here's the Fox Business News video from this morning which prompted the post in the first place. It focuses much more on negative equity than the CNBC clip.

Very good interview Spencer. Thanks for posting this Lenn.

When I hear a thrid of the sales are distressed properties it makes me want to cry!! In my market it's 85%!!! So for areas that aren't experience this yet I can assure you it can get a lot worse.

George. I just posted them on the post.

Jim. I know Atlanta is bad. When I get a call from a buyer relocating from Atlanta and they have a home to sell. . . . . . .

Judy. That is not surprising to me. You did a great job of analyzing the mess and, sadly, the future.

Spencer. Thanks. I added them to the post.

Bryant. Sadly, things are going to get a lot worse. Even in Florida, where investor buyers are moving inventory. However, there's still a state full of folks who can't sell if they need to. Of course retirees have not the need to sell as do young families, but from time to time, they have to sell too.

Lenn I saw them on the e-mail you sent me. The only County here in Connecticut that we have limits that are close to those is Fairfield County.

Hi Lenn: That was very informative - thank you for sharing.

Len - This was the most bummer of articles I have read. Is he saying real estate is dead for a long while? Should buyers be scared? Is this the trend? A false bottom to where we stand? Is This ours or His viewpoint. Should we advise accordingly?

With so many home owners under water as soon as it recedes a bit we could see a huge wave of properties on the market. Good for everyone to understand.

Hi Claude and others,

Let me try to clarify my perspective. I was trying to make three points in my media interviews today.

First, Zillow's data (and my opinion) is that home prices have further to fall in almost every major city, and certainly at the national aggregate level. Home values will decline from today's levels because of new foreclosures and short sales, as well as an inventory glut from homes already on the market. Additionally, there are still a lot of ARM resets coming (I don't recall the specific number) which will create a whole new group of distressed sellers, unable to cover their mortgage obligations and unable to refi because of negative equity.

Second, Zillow's data shows a significant amount of homeowners have negative equity -- about 20 million homes, or about 1 in 5. Six months ago it was 1 in 7 homeowners that had negative equity. As you know, negative equity is a serious issue for a homeowner because they can't refi with negative equity, and they can't draw down from a HELOC which means they can't fuel personal consumption off of their equity.

Third, there is a massive amount of "shadow inventory" waiting in the wings, which will come online as new listings when the housing market starts to turn. Conservatively, there are about 20 million homeowners who are basically waiting to list their home. About 1/3 of homeowners say they're at least "somewhat likely" to list their home in the next 12 months if they see "an improvement in the housing market". Using that 1/3 number would get us in the 30 million range, so I'm being conservative when I say about 20 million. As you probably know, there are about 4 million homes for sale now. The reason this "shadow inventory" matters a lot for all of us is that it will stall a recovery, because new listings will come on the market to sop up any new demand that comes. As a result, we'll see an "L-shaped" recovery, rather than a "V-shaped" recovery.

OK, so now that I've thoroughly depressed all of you....

First, what advice would I give to owners? Refi if you can, and don't sell if you don't have to.

To renters and first-time-homebuyers? Buy! Even though this probably isn't the bottom of the market, if you're going to stay in your home for a few years it doesn't matter that much. And timing the bottom precisely is impossible anyway. So take advantage of the huge amount of inventory, the low prices, the attractive financing, and the government subsidy of your first time home purchase.

To sellers: if you want to sell your home, price it correctly (which is probably lower than you'd like).

And finally, to real estate agents: Homeowners, buyers and sellers are terrified in the current environment. They need your help more than ever -- you're like a doctor to them in the midst of a health care epidemic. Educate, console, counsel, and you'll be invaluable to your clients. And of course, most of all, remember to market yourselves online because that's where your clients are.

I think I might go and turn this comment into a blog post of its own...

Lenn,

It seems some homes are behaving like cars...depreciating instead of appreciating like a good investment...!!! Thanks, Fran

MAY

George. That's probably good news for CT. IMO, it will get worse before it gets better.

Matt. Stay tuned.

Claude. This is the opinion of Spencer Rascoff, COO of Zillow, with which I agree 100%. Spencer articulated what I've been writing about for 2 years. I have had little support when writing about the insidious and pernicious effects of negative equity for individual home owners, the real estate market, the mortgage industry and our economy in general. When I saw the interview with Spencer on FoxBusiness yesterday a.m., it sounded like everything I've been warning about for 2 years.

Terry. Indeed and those homes on the market are not going to be normal sales when the seller/owner is under water.

Spencer. Post it and I'll reblog it.

Fran. Yes. Sadly so.

Great post Lenn, I've re-bloged it. I've been telling some of my potential sellers that are waiting for prices to rise about this. They will have a long wait.

Gabe. I agree. The only people that preach that we've hit bottom on a national level are the NAR, Congress and the White House.

MAY

ahhh Lenn... just when I thought we were on an uptick! I'm off to gather some stats for the Triangle...

Aw shucks Pamela and Lee.

The "Triangle" is immune from mere market forces.

Hi Lynn, I've bookmarked this to go back and check out the links tomorro - Thanks for sharing it - I've had these same thoughts and been wondering about the talk of recovery. I don't see it anytime in the near future....It was interesting to read Spencer's comments.

Debi

MAY

Hi Lenn, I missed it on TV. Thanks for the post. I will check out the links.

Lenn,

Negative equity is a familiar word here in Las Vegas. Its effects are going linger in our housing market for years to come.

MAY

Gita. Follow the links. It's worthwhile.

Esko. If the public only knew. If the members of Congress only understood. The ramifications to our economy are going to be here for many years to come. With this many consumer "out of the economy" the strinking GDP will have a long reach.

Fox news is always looking for the scare story and it's a shame that Rascoff is generalizing natioanally based unreliable data of select local markets, promoting zillow mortgages, and making unsupported assumptions of the effects of shadowy term "shadow inventory." There is no coubt that it will take time for our economy to recover, but before we decide when we have or have not "reached bottom" we should define the term.

Pike. Spencer is the COO of a national Internet portal. As such, his focus is on the national stats. That said, his numbers generally reflect the stats in my area of MD and Northern Virginia.

Besides, this IS a national problem and housing policy is made on the national level.

The insidious nature of negative equity will, IMO, damage our economy for decades to come.

The Interview was done on Fox AND on CNBC.

No one will ever accuse me of being a fan of Zillow. But, when I see factual info, the messenger is entitled to recognition.

I agree there is a national problem, and I don't argue that his numbers are incorrect in the markets he follows or in your market. However, I do have concerns when he makes extrapolates conclusions on a national level based on (self) selected markets.

As we learned when we first became agents, the average homeowner moves every 5 years. With this in mind, it is natural for there to be inventory waiting in the wings roughly in the number he gives us base on his survey. And while the absorption rate is currently higher than in the past even in strong markets, this doesn't lead to the conclusion that additional inventory "waiting in the shadows" will have any negative impact on the current housing market by "sopping up demand." What I'd really like to see is an actual prediction or two from Rascoff regarding some specific markets: how many new homes will have come on the market by this time next year. A year from now average home prices in the market will be down so many percent. The days on market will be..., the absorption rate will be.... Throwing out a bunch of number and concluding "we haven't hit bottom yet" is not news, not a reasoned conclusion based on data, and not at all helpful.

Eventually the sky will falll, the world will come to its end and those who over the last 5 thousand years will be able to tell the rest of us "I told you so." If you forcast doom and gloom--and even if you forcast great time a'plenty--eventually you're going to be right. If Rascoff can correctly predict when the bottom will hit and what it will look like I'll be impressed. Until he can make specific numerical predictions based on the numerical data his predictions are no better than Chicken Little.

I'm sure it is different in different markets, but it has always taken banks many months to put a home on the market after forclosure. It is not, and has not been unusual for a bank to take a year or more before putting the property on the market. There is more reo inventory now, it stands to reason that there in more reo inventory not yet on the market.

I will predict that we will not hear from Fox News that we are climbing out from the bottom of the housing market until we see a republican president again.

Pike.

I'm glad that Spencer is not engaging in prognostication That's risky and he could easily wind up with egg on his face and Zillow has a sufficiency of that.

Spencer cannot predict the future. No one can.

What his post and the interview reflected is facts about a neglected segment of the real estate market, those home owners who would but cannot sell their home due to negative equity.

I've written the same thing about our market in MD and Nothern VA many times. IMO, until the negative equity is understood, none of the preductions about sales and inventory for a year or five years will have any meaning.

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