And That Makes Seven in a Row: Real Estate Turns in Another Down Quarter

Home values declined 9.7% in the third quarter of this year relative to their levels one year ago, according to Zillow’s Real Estate Market Reports.  This marks the seventh consecutive quarter of negative year-over-year declines, each quarter turning in a greater negative annual change than the prior quarter.

New this quarter, the depth and duration of the housing downturn in some markets has translated into flat or negative five-year annualized appreciation rates.  Twenty-seven of the 163 markets covered experienced negative five-year annualized value changes. For example, Stockton real estate has dropped 3.8% on an annualized basis since 2003 and Boston home values have dropped about one percent annualized over the past five years.  Even worse, Detroit is teetering on the edge of seeing no appreciation over the past decade-home values have increased less than one percent on an annualized basis over the last ten years.

Overall there remain some daunting storm clouds on the horizon.  Foreclosure rates remained high with 18.6% of transactions in the past year being foreclosures nationally. Moreover, we estimate that 14.3% of all single-family homes are in negative equity as of the end of the third quarter, a situation that makes it more likely a home will enter foreclosure versus being sold for a loss when a household encounters financial stress.

And, turning to financial stress, there are abundant signs that more households are encountering or will encounter such stress in the coming months as the economy enters a recession of unknown length, bringing with it job losses (the unemployment rate of 6.5% is at a 14 year high) and decreased consumer confidence (Consumer Confidence Index dropped 38% in October to its lowest level ever) which will serve to dampen consumer spending.

Dr. Stan Humphries is a real estate economist and real estate expert for Zillow. Stan is in charge of the data and analytics team at Zillow, which develops housing market data for most major metropolitan statistical areas in the U.S., and provides economic research for current real estate market conditions. He helped create the algorithms for the popular Zestimate® home value and the Zillow Home Value Index (ZHVI).