No Respite From Housing Recession in First Quarter

Posted by: Stan Humphries    Tags:      Posted date:  May 8, 2011  

Home values fell three percent in the first quarter of this year, marking a pace of decline not seen since 2008 when the housing recession was at its worst.  Home values fell one percent between February and March and 8.2 percent from March 2010.  The cumulative decline in home values since the market peak is now 29.5 percent (see Figures 1 and 2).

There was little escaping the housing downturn in Q1 2011. With only one metro showing positive year-over-year change (Honolulu MSA), and one remaining flat (Pittsburgh MSA), the vast majority of U.S. markets logged declines over the past 12 months. The metros hit hardest were geographically diverse with Ocala, FL, Pueblo, CO, Detroit and Atlanta experiencing the sharpest yearly declines.

Homes in the bottom price tier lost the most value in the first quarter, while homes in the top tier lost the least amount of value. The value of homes in the bottom tier fell 13.9 percent year-over-year, while homes in the middle tier fell 8.7 percent and homes in the top tier fell 4.3 percent.

Nearly three-quarters (74.5 percent) of homes in the United States lost value from Q1 2010 to Q1 2011. That’s up from Q4 2010, when 69.2 percent had lost value, but is down substantially from a peak of 85.5 percent in Q1 2009.

A record (37.7 percent) number of homes sold in March were sold for a loss. The rate of homes selling for a loss has steadily increased since June 2010.

Negative equity in the first quarter reached new high with 28.4 percent of all single-family homes with mortgages underwater, from 27 percent in Q4.

Foreclosure liquidations rose throughout the first quarter after falling in late 2010 following the “robo-signing” controversy. In March, one out of every 1,000 (0.1 percent) homes in the country was lost to foreclosures, up from 0.09 percent in in December 2010, their lowest point since November 2009 (see Figure 3).

Foreclosure re-sales reached a new peak in March 2011, representing 23.7 percent of all sales during the month compared to 17 percent in March 2010. Foreclosure re-sales have been increasing steadily since June, when they made up 14 percent of all sales.

Because of the strong depreciation in the first quarter, we’ve revised our forecast for the total home value decline nationally in 2011 to 7-9 percent  (previously 5-7 percent) and our forecast of the bottom from late 2011 to 2012 at the earliest. As always, our expectation post-bottom (where we define the bottom as the end of consistent monthly depreciation) is for a long period of below-normal real estate appreciation during which time we work out the remaining overhang of excess housing supply.

Housing demand remains fundamentally weak but will see some improvement in the balance of this year due to slowly improving employment conditions and increasing rates of household formation.  We believe, however, that this somewhat improving picture on the demand side will be largely offset by excess supply.  The supply picture continues to look bad with approximately two million homes in the foreclosure process and another more than 1.5 million homes seriously delinquent. While delinquencies do appear to be declining recently, we believe that rates will remain much higher than normal for a considerable period of time due to high negative equity rates and elevated unemployment.

About the author
Stan Humphries
Stan is Zillow's Chief Economist. To learn more about Stan, click here