The percent of American single-family homes with mortgages in negative equity fell to 21% in the third quarter, down from 23% in the second, as home values stabilized in the short term and more underwater homeowners lost their homes to foreclosure, according to the third-quarter Zillow Real Estate Market Reports.
While year-over-year home values in the U.S. declined for the 11th consecutive quarter, falling 6.9% to a Zillow Home Value Index of $190,400, the rate of year-over-year decline shrank for the third quarter in a row, meaning home values did not decline as dramatically year-over-year in the third quarter as they did in the second or the first.
In addition, the Zillow Home Value Index remained relatively flat in the short term, declining 0.4% from the end of the second quarter to the end of the third quarter. The Zillow Home Value Index measures the value of all homes in an area, and the Q3 Zillow Real Estate Market Reports encompass 156 metropolitan statistical areas (MSAs).
Foreclosure resales remained high, making up 21.4% of all U.S. home sales in September. These resales made up the majority of sales in several MSAs, including the Merced, Calif., MSA (74.2%); the Stockton, Calif., MSA (69.3%); the Madera, Calif., MSA (68.7%); the El Centro, Calif., MSA (68.1%); and the Las Vegas MSA (67.5%).
‘The decline in the percentage of homeowners with negative equity is a positive sign, and is directly attributable to the stabilization of home values from the second quarter to the third,’ says Zillow Chief Economist Stan Humphries. ‘It is also attributable to many homeowners who were previously underwater on their mortgage losing their homes to foreclosure."
Last week's extension and expansion of the home buyer tax credit could help to ease the winter season's expected drop-off in sales, Humphries adds.
‘The credits are likely to bring continued stabilization in prices over this period, versus the price declines that we almost certainly would see otherwise," he comments. "Whether this stabilization will be sustainable after the tax credits expire, however, is yet to be seen. Some of the demand that we are buying with tax credits we are also borrowing from the future, and will likely have to pay for later in the form of weaker-than-normal demand.’
Some markets across the country showed encouraging signs in the third quarter. Home values increased year-over-year in 24 of 156 MSAs and remained flat in an additional 16. Only nine MSAs – including the Merced, Calif.; State College, Pa.; and Salisbury, Md., MSAs – showed increasing year-over-year declines.
The Milwaukee and Boston MSAs were the largest markets to show positive year-over-year changes in home values, with the Zillow Home Value Index rising 2.6% in Milwaukee and 1.6% in Boston.
SOURCE: Zillow