Short sales, foreclosures pull under millions of borrowers

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Deutsche Bank officials have predicted that 25 million, or 48 percent, of U.S. home mortgage borrowers will fall into the negative equity category by 2011.

And D.B. analysts Karen Weaver and Ying Shen estimate that 26 percent of all mortgages are already “under water.”

Other economists are not as pessimistic, but most admit that storm clouds are brewing on the home mortgage horizon.

Zillow.com predicts that at the bottom of the recession about 30 percent of mortgages will be “under water,” and Moody’s.com predicted that 17.5 million, or about 33 percent of mortgagees, will find their home values are less than the amount owed on first and second mortgages during the months to come.

The numbers are large enough that even the Wall Street Journal has taken notice, reporting that through June, 16 million homeowners were “‘upside-down” on their mortgages, up from 10 million, or 15 percent of owner-occupied homes, compared to a year earlier.

In addition, among owner-occupied homes, almost 10 percent of owners faced 125 percent loan-to-value ratios — and many of those in hard-hit states like California, Arizona, Florida and Nevada were looking at mortgage debt of 150 percent or more compared to the home’s actual value.

Long term effects

The Colorado Springs metro area median home value for July was $199,675, according to the Pikes Peak Association of Realtors.

That’s off 8.3 percent from the highs of 2007, but the city is better off than some.

Nationally the average year-over-year drop in home values based on Zillow.com data is more than 12 percent, and in cities like Modesto, Calif., Ann Arbor, Mich., Las Vegas or Orlando, Fla., values are down 25 percent to 40 percent.

Local homeowners who bought before the last boom have had time to build equity, watching their homes appreciate 4 percent to 6 percent per year or more since 1997, said El Paso County Assessor Mark Lowderman.

But for El Paso County’s 40,000-plus homebuyers who took out a mortgage since January 2005, the home value picture is not as pretty.

Even if — as some analysts believe — the market has bottomed out, residential real estate residue left behind by the housing bubble continues to plague up to 30 percent of local sellers, who find their home values are now less than the amount of their mortgage.

Taking the math one step farther, Lowderman said, depending on the neighborhood, 2011 home values will likely reflect that downward pressure.

“If you have 10 short sales or foreclosures in a neighborhood of 1,000 homes, it probably won’t affect values,” he said. “On the other hand, if you have 400 homes that are distress sales, they’re going to drive entire neighborhood values down.”

That, in turn, will affect how much equity even longtime homeowners will have — and the amount available for home equity loans and refinancing.

“I’m telling city and county officials to look out for 2012 when tax receipts reflect the new reality in valuations,” he said.

One Response to Short sales, foreclosures pull under millions of borrowers

  1. Zillow estimates are often off as much as 30 or more percent in the Ann Arbor real estate market. I wouldn’t but too much weight on z-estimates. Also, I am not sure I would put Ann Arbor in the same category as Las Vegas or Orlando. In the Ann Arbor there are a few communities where prices are off 40 percent or more, but there has been almost no speculative development here (unlike Orlando and Las Vegas) and the city of Ann Arbor has one of the strongest housing markets in the region – especially near the University of Michigan.

    Ann Arbor Real Estate
    September 6, 2009 at 4:16 am