More People Dealing With Negative Equity In Their Homes

Real Estate Agent with Keller Williams Realty, Knoxville-West 319217

My Take: This is one of the primary components as to why so many people are pursuing a short sale to sell their homes.  Unfortunately, the homeowner has no control over the real estate market and when they realize their mortgage is higher than the value of their house, it can very frustrating.  It is esepcially frustrating when the homeowner HAS to sell because they can no longer afford the home anymore.  It is important for the homeowner to keep a good long-term perspective when making a decision whether or not to pursue a short sale.  How will getting out from under mortgage benefit the homeowner 3, 5, and even 10 years down the road? How will it allow them to free up capital to allocate towards other essential expenses?  Sometimes, the homeowner must disconnect themselves from the house and look at it as an investment to make the best decision for them and their family.


Underwater as Home Values Post Sharpest Drop Since 2008: Zillow

05/09/2011 By: Carrie Bay


Home values in the United States fell faster in the first quarter of 2011 than they have in any quarter since 2008, when the housing market experienced its worst performance, according to a new report from Zillow.

The Seattle-based company's index of residential property values fell 3 percent nationally during the first three months of this year when compared to the fourth quarter of 2010.

As a result, negative equity hit a new high-water mark by the end of the first quarter, with 28.4 percent of homeowners with mortgages owing more on the loan than their home is worth, Zillow said. The company's underwater ratio is up from 27 percent in the fourth quarter of 2010.

Zillow's first-quarter index reading of home values came in at $169,600, 8.2 percent below where it was a year earlier. The company says home values have fallen 29.5 percent since they peaked in June 2006.

Meanwhile, foreclosures rose throughout the first quarter as banks unfroze moratoriums and allowed foreclosures to resume. Foreclosures had fallen in late 2010 due to the

slew of temporary suspensions brought about by the "robo-signing" controversy.

But by March, Zillow says activity had picked up once again, with one out of every 1,000 homes in the country lost to foreclosure during the month.

With the substantial home value declines, as well as increasing negative equity and foreclosures, Zillow says it is unlikely that home values will reach a bottom in 2011.

First-quarter data has prompted Zillow to revise its forecast, now predicting a bottom in 2012 "at the earliest."

"Home value declines are currently equal to those we experienced during the darkest days of the housing recession," said Dr. Stan Humphries, chief economist for Zillow. "With accelerating declines during the first quarter, it is unreasonable to expect home values to return to stability by the end of 2011."

Humphries says he did expect a "substantial payback" from the federal government's homebuyer tax credit initiative, which buoyed the housing market last year. But he warns that diminished demand post-tax credit, as well as rising foreclosures and high negative equity rates "make it almost certain that we won't see a bottom in home values until 2012 or later."

Zillow says very few markets were exempt from home value declines in the first quarter. Ninety-seven percent of the 132 markets covered by Zillow logged home value declines.

Only the Fort Myers, Flordia; Champaign-Urbana, Illinois; and Honolulu, Hawaii metro areas experienced quarterly increases, with home values rising 2.4 percent, 0.8 percent, and 0.3 percent, respectively. Home values in the Sarasota, Florida metro remained flat


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Wallace S. Gibson, CPM
Gibson Management Group, Ltd. - Charlottesville, VA

IMHO * Real estate professionals need to DELETE the term "negative equity" from their vocabulary.  Equity is EQUITY...there is no such thing as NEGATIVE EQUITY. 

Renters have NO EQUITY which is what people who owe more on their home than what it is worth have.


May 13, 2011 03:11 AM #1
Kenneth Young
Uni International LLC - Virginia Beach, VA

Interesting post John. 

As a Note Broker, I have dealth with more than a realtors that have short sales listed.  We cut the timeline on a short sale by buying the note directly from the lender, thus becoming the "lender" and working directly with the agent, we can respond to offers within 2 days of us receiving the docs concerning the loan.

What we are seeing is that most loans are underwater and non-performing.  By buying the note at a discount before foreclosure we save the lender the headache of having that toxic loan on their books as well as legal fees (average foreclosure costs a lender $60,000).  That being said, we can move the property at short sale while still making a profit.  It has to be a win-win for all parties.  The lender wins by getting rid of the toxic loan, the home owner wins by getting out of the loan, the buyer win by being able to purchase a home at market or below market value and the agent wins by getting their commission.



May 13, 2011 05:42 AM #2
John Verdeaux
Keller Williams Realty, Knoxville-West - Knoxville, TN

That;s a good point about "negative equity".  Never really thought about it, but the term doesn't really make sense. 

May 13, 2011 07:12 AM #3
John Verdeaux
Keller Williams Realty, Knoxville-West - Knoxville, TN


Do you guys buy loans in Tennessee?  If so, I would love to get your contact information.  We may be able to do some business together.




May 13, 2011 07:14 AM #4
Dave Halpern
Keller Williams Realty Louisville East (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

It will take many years for home values to climb back to match loan balances. As soon as people must move for any reason, they become immediate candidates for short sale or foreclosure.

May 15, 2011 01:51 AM #5
Goran Utvic
606 Homes LLC | Chicagoland Brokers Inc, Chicago IL 60656 - Chicago, IL
We Buy & Sell Chicago Houses Fast

It's unfortunate but a lot of homeowners were given loans that they could not afford with adjustable rates and now that the rate is higher they cannot afford to pay their mortgage...and with no equity in their homes the best solution is to short sale the home.

May 16, 2011 11:09 AM #6
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