Americans Lose $1.4 Trillion in Home Values in Q4

American homeowners collectively saw $3.3 trillion erased from the value of their real estate in 2008. What’s all the more stunning is that $1.4 trillion, 42 percent of the annual 2008 total, was lost in the fourth quarter alone, due largely to the fact that more markets fell into negative territory as the year progressed and those already in negative territory just got deeper.

These are just two of the literally thousands of data points found in Zillow’s Q4 2008 Real Estate Market Reports released today. Overall, as one might infer from just these two data points, the fourth quarter was another absolutely dismal quarter in terms of real estate market performance. Nationally, the Zillow Home Value Index was down 11.6 percent on a year-over-year basis to a value of $192,119. This marks the eight consecutive quarter of year-over-year depreciation and (again) the largest year-over-year decline in our data set, which extends back to 1996. While 20 percent (32) of the 161 markets we examined this quarter had positive year-over-year appreciation in the first quarter of 2008, only 9 percent (15) of markets were positive in the last quarter of 2008.

Some of the important implications of these real estate declines include:

• More than one-third (34.6 percent) of homes sold in 2008 were sold for a loss, up from 30.2 percent for the twelve months ending Q3 2008. While the $3.3 trillion in loss home value in 2008 can be considered akin to an unrealized loss in the stock market (i.e., people who don’t sell can wait for market values to rise again before selling, thus minimizing their particular loss), the loss for these one-third of homeowners is all too real.

• One in six (17.6 percent) of all homeowners is now underwater, more than the one in seven (14.3 percent) who were underwater in Q3. The Modesto and Vallejo, Calif., markets have the worst negative equity, with more than 80 percent of all homeowners there underwater.

• The higher rates of negative equity and increasing economic insecurity are combining to push foreclosure rates higher. One in five (19.9 percent) of all real estate transactions across the country in 2008 was a foreclosure. This was an increase from Q3, when 18.6 percent of all transactions were foreclosures.

• Unfortunately, the foreclosure numbers don’t even tell the whole story of the numbers of homeowners having to give up their homes, as 10.9 percent of all transactions in the United States in 2008 were short sales, or homes sales where the lender agreed to a home price less than the amount owed on the mortgage in order to avoid the cost and time of a foreclosure.

As usual, one should dive down into the individual metropolitan level reports to get a better idea of what’s happening on a local level. Doing so with the New York metro report, you’ll find that Manhattan is now posting a negative year-over-year change in home values compared with the 1 percent increase reported last quarter (no small wonder considering all of the job losses in the financial sector) and the tech centers in the Bay Area that had been maintaining some slight positive appreciation in home values in recent quarters (Cupertino, Palo Alto, Mountain View, Sunnyvale) have now slipped into negative year-over-year territory (-7.0%, -0.6%, -4.9% and -7.0% respectively).

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).