Report Says 22% Of All Homeowners Underwater

Zillow.com is reporting that more than one-fifth of all homeowners are now underwater on their mortgages. The company says that home values in the United States fell again in the first quarter, posting a year-over-year decline of 14.2 percent. The Zillow study covers 161 metropolitan areas and cover the value changes in all homes, not just homes that have recently sold.

Declining home values left one fifth (21.9 percent) of all American homeowners with negative equity by the end of the first quarter, says Zillow. By comparison, 17.6 percent of all homeowners owed more on their mortgage than their property was worth in the fourth quarter of 2008, and one in seven (14.3 percent) was underwater in the third quarter of 2008.

You look at these numbers and wonder if, in fact, the impact is overstated. Example: Smith has a house, the value has gone down, but Smith has no interest in moving. The value loss is not thrilling, but unless Smith is refinancing it also does not have much import.

Zillow also says that nine consecutive quarters of declines have left eight regions — including the Modesto, Calif., Stockton, Calif. and Fort Myers, FL regions — with median value declines of more than 50 percent since those markets peaked. In 85 of the 161 markets covered in the report, the annualized change over the past five years is negative or flat.

But in an early sign of improvement, several hard-hit markets in California, like Los Angeles, San Diego and Modesto, have seen two or more consecutive quarters of smaller year-over-year declines in home values. In total, 17 markets have seen improvement for two or more quarters in year-over-year results.

In the Los Angeles metro area, for example, the Zillow Home Value Index fell 18.9 percent year-over-year, a smaller decline than the 20.8 percent and 20.7 percent declines seen in the third and fourth quarters of 2008, respectively. In San Diego, home values fell 18 percent year-over-year, after falling 19.1 percent and 18.9 percent 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 percent since the peak of the market in the first quarter of 2006, and San Diego’s have fallen 35.4 percent since that market’s peak in the third quarter of 2005.

Meanwhile, potential sellers appear to be holding back until evidence of an improved housing market. In a separate survey of homeowner sentiment, one-third (31 percent) of homeowners said they would be at least somewhat likely to put their homes on the market in the next 12 months if they saw signs of a recovering real estate market.

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