National Market Continues to Drop; Some Markets Showing First Signs of Slowing Decline
By: Stan Humphries, Chief Economist | May 5, 2009
In the just-released Zillow Q1 Real Estate Market Reports, the first quarter of 2009 saw a continued decline of home values with the Zillow Home Value Index (ZHVI) dropping 14.2% on a year-over-year basis to a value of $182,378. From its peak in the second quarter of 2006, U.S. real estate values have dropped a total of 21.8% after nine consecutive quarters of year-over-year declines.
The sharp drops across the country have left eight regions – including the Modesto, Calif., Stockton, Calif. and Fort Myers, Fla. – with median values that are less than half those at their peak. In 85 of the 161 markets covered this quarter, the annualized change over the past five years is negative or flat. For the first time in the data series stretching back to 1996, the five-year annualized appreciation for the United States overall is flat (0.0%). Ten-year annualized appreciation is 4.7%.
Despite the bad news on a national basis, there were a few markets that started to show the first tentative signs of improvement. Markets such as Los Angeles, San Diego, Modesto and Merced – all which went into decline early and have sustained large declines – have now seen two or more consecutive quarters of smaller year-over-year declines in home values than in the previous quarter. Specifically, in the Los Angeles metro area, the Zillow Home Value Index fell 18.9% year-over-year, a smaller decline than the 20.8% and 20.7% declines seen in the third and fourth quarters of 2008, respectively. In San Diego, home values fell 18% year-over-year, after falling 19.1% and 18.9% in the third and fourth quarters of last year. Both markets have been hard-hit by the housing downturn: L.A.’s home values have fallen 33.6% since the peak of the market in the first quarter of 2006, and San Diego’s have fallen 35.4% since that market’s peak in the third quarter of 2005. It’s quite a statement of current market conditions when the good news is that the bad news isn’t getting worse.
Figure 1 below shows the Zillow Home Value Index (ZHVI) for the United States as well as the year-over-year change in the ZHVI. Also charted alongside these two metrics is the change in the year-over-year metric (the second derivative of the ZHVI, for those math-minded). For the national market overall, one can see that the YoY declines continue to worsen. To graphically depict the tentative signs of improvement in the Los Angeles market, Figure 2 shows a similar chart for that region. Here, one can see that, while the ZHVI continues to decline, the YoY change is now getting less negative with each quarter (as shown by the U-shape to the orange line). This is also shown by the fact that the second derivative (light purple line) has become positive in that market. The ZHVI itself will stop declining when the YoY metric returns to zero which, judging by the rate at which the YoY metric has moved in the past, is at least a few quarters away. We’ll have some indication that a bottom in the US market is in sight when we see a similar pattern in its metrics.
Figure 1:
Figure 2:
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Comments
19 Comments so far
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dick pankratz on May 6, 2009 4:31 am
In a Zillow attributed article, it was stated that about 21% of homeowners are underwater. Is this 21% of all homeowner (both those with and without mortgages) or 21% of only those with mortgages? If the latter, what % of homeowners have mortgages?
Thank you
Tobby on May 6, 2009 9:34 am
Ditto to what Mr. Pankratz asks. About half of the houses in the U.S. do not have a mortgage. If this is 21% of the roughly 50 million houses with mortgages or 10.5 million houses then your estimate is in line with others.
David G from Zillow.com on May 6, 2009 10:27 am
dick and Tobby - Yes, we’re talking about all homes. When you back out homes without mortgages, the number is 33% of all homes with mortgages are underwater.
MP on May 6, 2009 12:50 pm
David - Can you also provide some reference points of when this type of mortgage numbers has happenned in past recessions?
Chris Tobe on May 6, 2009 1:41 pm
I have noticed at foreclosure sales in Kentucky over 75% of the sales are to the banks themselves at inflated prices which do not show a loss. I have heard this is nationwide, our TARP money used in foreclosure sales to keep zombie banks alive.
space_acer on May 6, 2009 1:59 pm
Using current 10 years trend doesnt show the whole picture. Fact is prices in many hot spot in California doubled from 1998 to 2000.
If you really look at the 25 year trend, it will show more information to users and its relationship to inflation.
http://www.housingbubblebust.com/OFHEO/Major/NorCal.html
We are nowhere near the bottom. The 25 year trends also indicates prices are in recovery, downwards, not upwards. There will be no upward price recovery.
Its no different than the dot.com inflated prices of late 90s.
Yuri on May 7, 2009 10:46 am
I am trying to monitor New York market, Brooklyn in particular. This market seems to be isolated from the rest of the country.
Can anyone tell me what to expect in Brooklyn, NY
Michael on May 7, 2009 12:41 pm
BIG difference in value checks with Zillow and other sites. According to zillow the market has declined as much. If you enter same property info at zillow.com and bankofamerica.cyberhomes.com you get a BIG difference in value. But according to our market Santa Clarita California, zillow is way off. Some of us still have equity….YEAH RIGHT!
Zillow get yur facts right.
JOHN on May 7, 2009 6:36 pm
Its all crap…bought my home for 225k 2 yrs ago and put close to 60k into it and this site is trying to tell me my neighbors house that used to be a chicken coop is worth approx the same as my home. Wheres the common sense
dasmb on May 10, 2009 4:35 pm
No offense, but if you sunk $60k into a house with a “chicken coop neighbor,” and you did so with the hopes of getting a return on your investment, you made a big mistake. If you treat our home as an investment, you never want to have the most expensive home on the street — it’s too hard to sell, and too hard for a buyer to finance.
Zillow’s price — and to a very large extend, the market price — is based on square footage and prior sales in the surrounding area. If you have a very nice, very small house, it’s not appraised for as much as a very large, crummy house.
If you put that money into the house because it was work you wanted, and it makes your life more comfortable — then enjoy it, and stop worrying about the market value. Market value is nothing but potential — if you don’t intend on tapping that potential any time soon, who cares?
The only way to be sure to maintain the value of your house is to buy in a down market, sell in an up market and put as little of your money into it as you can.
DebtFree on May 12, 2009 8:59 am
I find this language from Stan curious: “Despite the bad news on a national basis, there were a few markets that started to show the first tentative signs of improvement.”
Improving home affordability is “bad news”?
Rising prices (AKA reduced home affordability) is a “sign of improvement”?
ApplyCreditCards on May 27, 2009 5:34 pm
Hi, cool post. I have been wondering about this topic,so thanks for writing.
CreditCardsMaster on May 29, 2009 12:00 pm
I guess the troubles with the markets will continue for few years more.
Josh on June 8, 2009 6:26 am
The slump in Real estate prices has created room for many foreclosures and short sale opportunities. The best Solution to gain from this crunch is, you should make an offer way below the current market value & you have to buy the property for much less than it is currently worth. Real estate investing is widely regarded as a superior way to build present income and long-term wealth.
More Help for Underwater Homeowners | Free FHA Loan Advice on July 7, 2009 11:09 am
[...] to a significant number of additional people who need help. According to our analysis of the Q1 Zillow Real Estate Market Reports, that means up to 36% of all homeowners with mortgages, or 20.1 million households, could now [...]
Local Coupons on September 11, 2009 8:57 pm
33% of mortgaged home owners being underwater is a staggering number. 20.1 million households, I guess this is the kind of information that those looking to get into their own homes need to seriously consider before just taking the leap. It is all very well to go through the process and get the mortgage but to be in such trouble in a short time afterward is indeed a scary prospect.
Local Online Advertising on September 20, 2009 2:39 am
There are certainly some dramatic change but as it seems there may be a pattern forming. I guess these statistics have to help potential home buyers to a degree to be more cautious but they can not take into account outside influences, other than economy, that can destroy percentages.
John whites on September 23, 2009 3:27 am
Nice information… but in Toronto the real estate is growing so its obvious that we can see changes in 1 or 2 years
equityrelease on October 28, 2009 4:14 pm
Thats good news for Toronto with the markets growing, let hope the ones in decline follow suit.