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One-Third Of Recent Home Buyers "Underwater"

Increasing numbers owe more than their home is worth

By Mark Huffman
ConsumerAffairs.com

August 13, 2008

Part of the problem is the loss in real estate value, which can be more than 20 percent in some areas of the country. But another contributing factor is the widespread use of "creative" financing during that time. Many homeowners purchased their homes for little or no money down. It wasn't unheard of during that time for lenders to loan more than the home's purchase price, under the assumption that prices would continue to escalate.

Zillow.com reports second-quarter home prices fell nearly 10 percent from the second quarter of 2007, meaning that nearly 30 percent of owners have negative equity. If you happened to buy at the market's peak in 2006, the new is worse. Forty-five percent of those buyers now owe more than they home is worth, the company reports.

The median U.S. home value stands at $206,919 -- it's lowest point since the fourth quarter of 2004. That leaves nearly one-third of homeowners who purchased since 2003 with negative equity.

Some people who have to sell their homes are forced to take a loss. Nearly 25 percent of the homes sold last year fell into that category. Others who hold out for a higher price are seeing their homes sit on the market for months -- even years -- adding to the glut of inventory of homes.

A map showing areas where home prices have declined the most mirrors the map showing the most foreclosures. Home prices are down 20 percent or more in parts of California, Arizona, Nevada and Florida -- states that also lead the nation in foreclosures.

Home values are down the least in parts of the south and Midwest. Coincidently, home values never appreciated in these areas to the extent that they did in California and Florida.

In California, four metropolitan areas -- Stockton, Modesto, Merced, and Vallejo-Fairfield -- had the highest number of homeowners who have negative equity. Zillow.com says 90 percent of those properties are underwater. The percentage is 80 percent in Riverside-San Bernardino, Bakersfield, Yuba City, El Centro and Madera.

"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."

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