Nearly 50,000 locals still underwater

Homes are lined up near Carmel Valley.
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.

Obama Answers Housing Questions from Public During Live Discussion

Following a speech Tuesday night in Phoenix, in which President Barack Obama discussed his ideas for housing finance reform, the president today took questions from American citizens during a live discussion hosted by Zillow CEOSpencer Rascoff.

During the question and answer session Wednesday, Obama reiterated his stated goals to bring a gradual end to Fannie Mae and Freddie Mac, to bring private capital into the housing market, and to offer affordable housing options—both rental options and 30-year mortgages.

Obama admitted that while it is the American dream to own a home, not all Americans are in a position to purchase a home. In particular, younger Americans with

student debt may not be in a position to accrue more debt through a mortgage loan.

In fact, Obama said one of the problems leading to the housing crisis was that many Americans who should have been renting were being offered mortgage loans.

Obama plans to combat the housing dilemmas facing young Americans in two ways—by helping ensure affordable rental housing options and by reducing the cost of college.

Money that for past generations would have gone toward a down payment on a house is now going to student debt, Obama said. Thus, helping reduce the cost of college will positively impact the housing market by allowing more young people to purchase homes instead of returning to their parents’ homes, he said.

Obama also discussed plans for the future of housing finance, including scaling back Fannie Mae and Freddie Mac’s portfolios and encouraging private capital to enter the market.

In most developed countries, the government does not have such a large role in the housing market, Obama said.

“We’re actually confident that the private market can step in, do a good job, and the government can be a backstop,” Obama said, adding, “In some ways it’s a return to earlier models.”

 

 

October Marks 12 Months of Home Value Increases

October marks the 12th consecutive month of monthly home value increases, according to Zillow, which reported a 1.1 percent increase over the month.

Home values were up even higher on an annual basis, climbing 4.7 percent over the year and representing the greatest increase since September 2006.

Home values now stand at $155,400, according to Zillow.

“Those dubious about the durability of the housing recovery will point to the large role that investors are playing in the recovery, or to the large number of foreclosures yet to hit the market, as factors to be wary of,” said Stan Humphries, chief economist at Zillow.

“But the bottom line is that homes are more affordable now than at any time in recent memory, and buyers are seizing this opportunity,” he continued.

Chicago was the only one of the 30 largest metro areas Zillow measures to experience a monthly decline in home values in October.

On an annual basis, four of the 30 metros experienced value declines.

The metros measuring the highest annual value increases in October include Phoenix (22.3 percent), San Jose, California (11.4 percent), Denver (10.4 percent), San Francisco (9.5 percent), and Miami-Ft. Lauderdale (8.8 percent).

Zillow reported another positive sign for the housing market: decreasing foreclosures. Foreclosures declined 0.8 percent in October, and the annual decrease was even greater—1.9 percent.

In October, 5.57 out of every 10,000 homes were in some stage of foreclosure.

Looking forward, Zillow anticipates “increasing numbers of potential buyers entering the market as the broader economy continues to recover and household formation picks up further.”

“We’re hopeful that negotiations over the ‘fiscal cliff’ don’t derail this momentum,” Humphries said.

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