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Where U.S. Homeowners Are Losing Value Fastest
By Matt Woolsey, Forbes.com Nov 13th, 2008


Homeowners with Citigroup loans in foreclosure-rich Virginia Beach, Va., and Orlando, Fla., are in luck. The mortgage giant announced today that it will impose a moratorium on most foreclosures and modify $20 billion in mortgages to enable homeowners who are not behind on their loans, but in danger of falling behind, to avoid foreclosure.

Those that don't fall under the plan? They're in hot water. Well, underwater.

Virginia Beach homeowners who bought homes this year possess a paltry 5.2% of home equity, and 34.5% owe more on their property than it's worth, according to Zillow.com, a real estate research group. That's the worst rate in the country. Even in Orlando and Miami, two cities hammered by bad loans and home-equity dips, only 30% and 29% of homeowners are underwater, respectively. It's a similar story in El Centro, Calif., Bakersfield, Calif., and Cumberland, Md.


What's certain to follow? Foreclosures.

"Negative equity is a chief stimulant for foreclosures," says Stan Humphries, vice president of data and analytics at Zillow.com. "When facing some type of economic crisis, if you have negative equity you have a lot fewer options."

Behind the Numbers

Using data from Zillow.com, a provider of housing-market statistics, we looked at the 163 largest Census-defined metro areas in the U.S. for cities where new homeowners are losing value fastest, whether as the result of falling home prices, mortgages based on inflated values or loans that required low down payments. Foreclosure hot spots like Sacramento, Calif., Phoenix and Las Vegas didn't show up on the list as foreclosures, and sales for loss over the past year wiped out heaps of properties' negative equity. In Sacramento, for example, only 17% of homeowners who bought this year are in negative equity situations, compared with 68% of those who bought in 2006.
In cities such as Yuma, Ariz., Bakersfield, Calif., or Port Saint Lucie, Fla., negative equity rates aren't evaporating nearly as quickly. In fact, of homeowners who bought this year, 34%, 31% and 28.3% are already underwater, respectively. That's worse than Phoenix, where new homeowners are underwater at a 23% rate.

In some spots, super-low down payments are to blame. The median down payment in Visalia, Calif., this year is 5%. In Virginia Beach, it's 1.8%. And in El Centro, it's 1.6%.

This lack of equity at the outset is compounded by dropping home values. In many property boom-bust epicenters like Orlando or Miami, home values are still up over the last five years (5.2% in Orlando and 4.2% in Miami) even though prices have dropped by 18% and 21% this year, respectively. That's a sign that there's still plenty of room for correction.

And since price corrections tend to overshoot fair value on their way to recovery, it's safe to assume that prices will continue to fall, and the number of homeowners finding themselves underwater will grow. In addition, forecasters looking at 2003 levels--before the market took off--as a bottom aren't accounting for the amount of bad loans, foreclosures and shaky access to credit that are present now but weren't present in 2003.

"The problem with this technical approach to finding the bottom of the housing market is that it ignores both demand and supply-side realities," says Anthony Sanders, finance professor at Arizona State University. "Take Phoenix, for example. The technical bottom of 2003 prices ignores the fact that the composition of the housing market has fundamentally changed."

To stem the continued losses, some might sell their homes for a loss. But few people are doing so because they're confident their home is still worth what they paid. Zillow produces a consumer confidence survey and for the third quarter of 2008, one-half of homeowners believed their home values had increased or stayed the same over the last year, when three-quarters of homes nationwide had dropped in value.

With any luck, the homeowners in the cities on our list won't try to test that delusion any time soon. As home prices continue downward and the economy teeters, it's not a good time to have little cash in your house.

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Replies to This Discussion

Thanks Sharon for sharing this.
I still hold fast to G-d's kingdom of economy is greater & so much different than the world's economy. Yet, dicernment also speaks of the changes going on with every aspect of life. So I am not minimizing anything.
I have begun to work for a Jewish man who is a commercial broker and he's still making good money. Eastern Union with Ira at the helm has started a new program, The Scoop is hiring and bringing in the income. So go figure--HaShem is greater.
I am not minimizing what's going with mortgages, housing,etc
Trying to find a balance I suppose. And if you think I am off the wall it's ok to tell me.
Rivkah

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