Zillow Raises Estimate Again: 16 Million Homes Underwater

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Editor’s Comment:

This is why I am re-starting my seminar tours. The information out there is disinformation and in this case sellers don’t realize how badly they have been screwed until they are walking toward the closing table. The “underwater” phenomenon represents a vast market inventory shadow that is not being counted by anyone — which is why my estimates of market activity and prices are so much lower than what you hear from everyone else. So far I have been right every year.

Zillow is at least making an effort. It is sharpening the definition of “underwater.” We have been saying for years that the number of homes “underwater” is both rising and vastly underestimated. The reason I knew was that just by putting pencil to paper and using all the factors that measure the amount of money one might get as proceeds from the sale of a home, the average PROCEEDS from the sale of residential property was substantially below the average VALUES that were being used. Zillow has now entered the world of reality by adding all the relevant mortgages and not just the last one allocated to that property.

Once upon a time when you sold a house you received a check for the proceeds of the sale. It was always lower than what you expected because of expenses and charges that you incurred and after you deducted the expenses that didn’t appear on the HUD 1 Settlement Statement (money that you spent preparing the house for sale).

Now the situation is different. Instead of getting a check, many if not most homeowners must bring a check if they want to sell their home. Most homeowners, in other words, must pay money out of their pocket if they want to sell their home. In some cases, the bank will allow a short-sale where they will accept a payoff less than the amount they say is owed, but even then, the hapless homeowner will still be unable to recover his down payment, all the money he put into the house in furnishings and improvements, and all the principal payments made on a house that was intentionally overvalued, using inflated appraisals that would  leave the homeowner screwed.  

When they start looking at “Seller’s Proceeds” from the standpoint of a real HUD 1 settlement sttements, the figure will be even lower than the current Zillow estimate. The disconnect between “prices”, “home values” and “proceeds” has never been greater. The question of whether or not a home is underwater is determined by proceeds of sale — without regard to price or value. Being underwater means to answer a question: “How much money will the seller need to spend in order to sell the property with free and clear title.”

Forgetting the whole issue of title corruption caused by the use of MERS which further affects prices, values and proceeds, the amount of money required from the seller in order to sell his/her home is nothing short of sticker shock and the fact remains that a majority of the people affected do not know what has happened to their wealth. They do not understand the extent to which they suffered damage by Wall Street schemes. And of course they don’t know that there is something they can do about it — like any rational businessman instead of the deadbeat bottom-feeders  portrayed by bank mythology.

Once all factors (other than MERS) are taken into consideration, the Zillow numbers will change again to more than 20 million homes and will probably reach 25 million homes that are really underwater, most of which are hopeless because values and prices will never get enough lift, even with inflation, to make up the difference between what they must pay as sellers to get out of the deal and what they can get from buyers who are willing to buy the home. Add the MERS’ factors in, now that title questions we raised 4 years ago are being considered, and it is possible that many homes cannot ever be sold at any price. Where the levels of “securitization” are limited to only 1, then perhaps it is possible to sell the property but not without spending more money to clear title. 

Nearly 16M Homes Are Now Underwater

by THE KCM CREW

Zillow just reported that their data shows nearly 16 million homes in this country are now in a negative equity position where the house is worth less than the mortgages on the home. This number is dramatically higher than the approximate 11 million reported by other entities. Why the huge difference? Zillow professes to take into consideration ALL loans on the property not just the most recent loan (purchase or refinance).

The key findings in the study:

▪       Nearly one-third (31.4 percent) of U.S. homeowners with mortgages – or 15.7 million – were underwater on their mortgage.

▪       A slower pace of foreclosures after the robo-signing issues of 2010 contributed to slower progress in working down negative equity. Foreclosures cause homes to come out of negative equity when a bank or third party takes ownership.

▪       Nine in 10 homeowners continue to make their mortgage and home loan payments on time, with just 10.1 percent of underwater homeowners more than 90 days delinquent.

▪       Nearly 40 percent of underwater homeowners, or 12.4 percent of all homeowners with a mortgage, owe between 1 and 20 percent more than their home is worth.

▪       An additional 21 percent of underwater homeowners, or 6.6 percent of all homeowners with a mortgage, owe between 21 and 40 percent more than their home is worth.

▪       About 2.4 million, or 4.7 percent of all homeowners with mortgages owe more than double what their home is worth.

How can negative equity impact the housing market? In the report, Zillow Chief Economist Stan Humphries explains:

“Not only does negative equity tie many to their homes, by making homeowners unable to move when they may want to, but if economic growth slows and unemployment rises, more homeowners will be unable to make timely mortgage payments, increasing delinquency rates and eventually foreclosures.”

Case Shiller: House Prices fall to new post-bubble lows in March NSA

by CalculatedRisk

S&P/Case-Shiller released the monthly Home Price Indices for March (a 3 month average of January, February and March).

This release includes prices for 20 individual cities, two composite indices (for 10 cities and 20 cities) and the National index.

Note: Case-Shiller reports NSA, I use the SA data.

From S&P: Pace of Decline in Home Prices Moderates as the First Quarter of 2012 Ends, According to the S&P/Case-Shiller Home Price Indices

Data through March 2012, released today by S&P Indices for its S&P/CaseShiller Home Price Indices … showed that all three headline composites ended the first quarter of 2012 at new post-crisis lows. The national composite fell by 2.0% in the first quarter of 2012 and was down 1.9% versus the first quarter of 2011. The 10- and 20-City Composites posted respective annual returns of -2.8% and -2.6% in March 2012. Month-over-month, their changes were minimal; average home prices in the 10-City Composite fell by 0.1% compared to February and the 20-City remained basically unchanged in March over February. However, with these latest data, all three composites still posted their lowest levels since the housing crisis began in mid-2006.

“While there has been improvement in some regions, housing prices have not turned,” says David M. Blitzer, Chairman of the Index Committee at S&P Indices. “This month’s report saw all three composites and five cities hit new lows. However, with last month’s report nine cities hit new lows. Further, about half as many cities, seven, experienced falling prices this month compared to 16 last time.”

Case-Shiller House Prices Indices

Click on graph for larger image.

The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 34.1% from the peak, and up 0.2% in March (SA). The Composite 10 is at a new post bubble low Not Seasonally Adjusted.

The Composite 20 index is off 33.8% from the peak, and up 0.2% (SA) from March. The Composite 20 is also at a new post-bubble low NSA.

Case-Shiller House Prices Indices

The second graph shows the Year over year change in both indices.

The Composite 10 SA is down 2.8% compared to March 2011.

The Composite 20 SA is down 2.6% compared to March 2011. This was a smaller year-over-year decline for both indexes than in February.

The third graph shows the price declines from the peak for each city included in S&P/Case-Shiller indices.

Case-Shiller Price Declines

Prices increased (SA) in 15 of the 20 Case-Shiller cities in March seasonally adjusted (12 cities increased NSA). Prices in Las Vegas are off 61.5% from the peak, and prices in Dallas only off 6.7% from the peak.

The NSA indexes are at new post-bubble lows – and the NSA indexes will continue to decline in March (this report was for the three months ending in February). I’ll have more on prices later

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