Foreclosure Listings Clobber Nearly 22 Percent Homeowners
May 7th, 2009 by 
sharon
The oversupply of homes in foreclosure listings in many areas of the country has pushed down home values to a point that 21.8 percent of all the country’s homes were underwater in the first quarter.
Underwater borrowers are those homeowners whose mortgage loan balances are higher than the current market values of their homes.
According to real estate firm Zillow.com, over 20 million houses were in negative equity in the first quarter, after the prices of homes, particularly houses in foreclosure listings, fell by more than 14 percent.
Stan Humphries, vice president for data and analytics at Zillow.com, said low home prices, including prices in foreclosure listings, plus low down payments have put many borrowers in negative equity. He added that in some areas, more than 50 percent of all houses are underwater.
Among these areas are Las Vegas, where 67.2 percent are underwater; Stockton in California, with 51.1 percent underwater; and Modesto, with 50.8 percent in negative equity.
Zillow.com tracks home prices by gathering sales records and price trends in a community and then comparing price estimates to borrowers’ original loan balances.
Zillow considers mortgage balances at the time the loans were taken out and price changes after. It excludes principal reductions that may have been made through the payment period.
The Zillow.com’s method is conservative, according to Humphries, because more people are reducing the value of their homes by taking more lines of credit and home equity loans than adding value to their homes by reducing their principal balances. He said his firm’s estimates are either right on the dot or a bit understated.
However, some analysts have questioned Zillow.com’s estimates. Richard DeKaser, founder of Washington, D.C.-based Woodley Park Research, said that Zillow.com’s estimates are overstated.
DeKaser pointed out that CoreLogic reported an estimated 8.3 million underwater borrowers as of December 2008 and that Moody’s Economy.com reported an estimated 14.8 million underwater homeowners in the first quarter.
According to Zillow, underwater borrowers are more at risk of losing their houses to foreclosure listings than those with home equity. Zillow.com’s data on sales from foreclosure listings supports the connection of negative equity to foreclosures.
In the city of Los Angeles, where 20.3 percent of homeowners have negative equity in the previous 12 months, home sales from foreclosure listings comprised 34 percent of total home sales. In contrast, in New York City, only 7.8 percent are underwater and only 4.5 percent of all house sales were from foreclosure listings.
