Many new owners owe more than home's worth

By Bob Ivry BLOOMBERG NEWS | Wednesday, August 13, 2008

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NEW YORK | Almost one-third of U.S. homeowners who bought in the past five years now owe more on their mortgages than their properties are worth, according to Zillow.com, an Internet provider of home valuations.

Second-quarter home prices fell 9.9 percent from a year earlier, giving 29 percent of owners negative equity, the Seattle company said. For those who bought at the 2006 peak of the housing market, 45 percent are now under water, Zillow said.

Negative equity and declining prices contribute to the foreclosure rate because some homeowners don't have the cash to pay off the mortgage and end up surrendering their homes to the bank that holds the loan, said Stan Humphries, Zillow's vice president of data and analytics.

"For homeowners who need to sell, this is a gravely serious situation," Mr. Humphries said. "It can also be harmful to communities where the number of unsold homes adds more to inventory and puts downward pressure on prices."

Almost one-quarter of U.S. homes sold in the past year were for a loss, Zillow said.

The highest percentages of homeowners with negative equity were located in California. In four of the state's metropolitan areas - Stockton, Modesto, Merced and Vallejo-Fairfield - the number of homeowners whose mortgage debts exceeded the values of their properties topped 90 percent, Zillow said.

In Stockton and Modesto, more than half the sales in the second quarter were of foreclosed homes, Zillow said. Almost 15 percent of sales nationwide were foreclosures, the company said.

Prices fell on a year-over-year basis in 140 out of 165 markets, Zillow said. Pittsburgh, Oklahoma City and Austin, Texas, were among the markets that saw rising home values, the company said.

The 9.9 percent decline in home values was the largest on a year-over-year basis in at least 12 years, Zillow said. The median home price of $206,919 was the lowest since the fourth quarter of 2004, the company said.

"Sellers are starting to adjust their expectations," Zillow Chief Financial Officer Spencer Rascoff said. "More sellers accepting a loss is actually a sign of optimism. It means that the transactions might start happening. There are so many sales contingent upon the buyer selling their home."

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