Nearly 50,000 locals still underwater

Homes are lined up near Carmel Valley. — K.C. Alfred

By Jonathan Horn

Tens of thousands of San Diego County homeowners continue to owe more on their properties than they are worth, despite the run-up in prices that has taken place over the last two years.

In the second quarter of this year, there were 46,585 county homeowners underwater on their homes, real-estate tracker Zillow reported this week. Those with negative equity make up about 10 percent of property owners in the county who have a mortgage, down from 21 percent in the second quarter of last year.

The homeowners were underwater despite an increase in the county’s median home price of more than $100,000 over the last two years.

“There were a lot of people that got caught at the top (of the housing bubble),” said Mark Goldman, a loan officer and real-estate lecturer at San Diego State University. “During the run-up, people were just out at a frenetic frenzy in 2006 and 2007. They didn’t care what price they paid for property.”

Negative equity in the county peaked at 35.6 percent of homeowners in the first quarter of 2012, but it appears those remaining underwater bought in areas with new construction completed just before the housing crash. Most of the negative equity in the county is in Chula Vista, Oceanside, San Marcos, Spring Valley and El Cajon.

As a whole, San Diegans who are underwater collectively owe $6.14 billion. That amount, however, should continue to decrease as San Diego home values rise, and people regain equity in their properties.

For example, in June, the median sale price in the county was $450,000, up 8 percent from June 2013, and 34 percent from the median in June 2012. Still, that’s a long way from the peak median of $517,500 in November 2005, according to CoreLogic DataQuick.

Zillow predicted that by the second quarter of next year, the percentage of homeowners underwater will decline to 7.6 percent in San Diego County.

“We knew it was going to take a long time to correct,” Goldman said. “There’s always going to be properties that are upside down. Is this more than normal? Yes, but we’re returning to a more stable market, and there will be people who just simply have paid too much for their property.”

Christopher Thornberg, founder of Beacon Economics of Los Angeles, said the move-up market will get a drastically needed boost as people regain equity in their homes.

“More of that equity means that people are going to have better access to capital, they’re going to have more money to put down on other properties,” he said. “The move-up buyer is the kind of buyer that drives new home construction.”

Nationwide, 17 percent of homeowners, or 8.7 million, were underwater in this year’s second quarter. Of the nation’s 35 largest metropolitan areas, San Jose had the lowest percentage of property owners underwater on their homes, with 4.6 percent, while Atlanta had the highest at 28.9 percent.