Early 2010 Housing Stabilization Fizzles; U.S. Homes Set to Lose $1.7 Trillion This Year
Despite the housing market’s strong start to 2010, the latest data from Zillow shows that homes will likely have lost more value by the end of the year than they did in 2009. Using our housing market data from the first 11 months of the year, along with some forecasting for December, our research arm has calculated that U.S. homes are set to lose $1.7 trillion in values during 2010. That’s 63% more than the $1 trillion lost in 2009.
Since the peak of home values in June 2006, more than $9 trillion in values has come out of the housing market. As a comparison, that’s more than the cost of 12 wars in Iraq, according to a study by the Congressional Research Service.
What it means for homeowners
While this may sound like another disheartening statistic for homeowners, it’s important to consider what this really means. It’s a great way to illustrate the big picture: A lot of value has come out of the market, which has implications for the economy as a whole. But for individual homeowners, what it means really depends on where you live and on your current stage of homeownership.
For starters, not every market we analyzed saw a drop in total market value. Places like the Boston and San Diego metropolitan statistical areas (MSAs) actually saw an increase in total market value (see the table below for a look at the 20 biggest markets we analyzed). It’s important to point out that most of these gains were made in the first half of the year, before the effect of the homebuyer tax credits wore off, but an increase still represents good news for homeowners.
It’s also important to point out that a big dollar figure doesn’t necessarily mean a big average drop in home values. For example, the total market value in the New York MSA fell $103.7 billion in 2010. That’s a big number, but there are a lot of homes in the New York metro area — 4 million single-family homes, condos and co-ops, to be exact. Median home values there fell only 3.8% year-over-year (as of October), which was a smaller decline that we saw nationally (the national median home value was down 5% year-over-year in October). Even though most homes in the New York area saw smaller-than-average losses in values, there are so many of them that the total market value in the area fell by a big number.
What it means also depends on whether a homeowner is content in their home and planning to stay for several more years, or whether they are hoping to sell or refinance. For those who are planning to stay in the home, any loss in home value is like an unrealized loss in the stock market. Yes, a homeowner may not be happy to have to sell for less than the peak value of their home, but, depending when they bought they home, they still may be able to sell for more than they bought the home. But if a homeowner wants to sell or refinance, the current value of their property becomes more important. Any of those activities may still be possible, as long as the homeowner has positive equity, but in the case of negative equity, all bets are off.
Big picture, seeing the market lose more value in 2010 than it did in 2009 was unfortunate. Government interventions, like the tax credit, did help buoy the market in the first half of 2010, but once those came to an end, the market again began to correct. Thanks to high rates of foreclosure and negative equity, it does not appear that the first half of 2011 will bring much relief. However, the hope is that the market will reach a bottom sometime next year, and that average rates of appreciation will return sometime in the next three to five years.