Negative Equity Falls in Third Quarter, Home Values Show Short-Term Stabilization

Negative Equity Falls in Third Quarter, Home Values Show Short-Term
Stabilization
Impending Foreclosures, Homebuyer Tax Credits Likely to Affect Real Estate
This Winter:

SEATTLE, Nov. 9 /PRNewswire/ -- The percent of American single-family homes
with mortgages in negative equity(1) fell to 21 percent in the third quarter,
down from 23 percent in the second, as home values stabilized in the short
term and more underwater homeowners lost their homes to foreclosure, according
to the third quarter Zillow Real Estate Market Reports(2).

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Year-over-year home values in the United States declined for the 11th
consecutive quarter, falling 6.9 percent to a Zillow Home Value Index(3) of
$190,400. However, the rate of year-over-year decline shrank for the third
quarter in a row, meaning home values did not decline as dramatically
year-over-year in the third quarter as they did in the second or the first.

In addition, the Zillow Home Value Index remained relatively flat in the short
term, declining 0.4 percent from the end of the second quarter to the end of
the third quarter. The Zillow Home Value Index measures the value of all homes
in an area, and the Q3 Zillow Real Estate Market Reports encompass 156
metropolitan statistical areas (MSAs).

Foreclosure re-sales(4) remained high, making up more than one-fifth (21.4
percent) of all U.S. home sales in September, and made up the majority of
sales in several MSAs including the Merced, Calif. MSA (74.2 percent), the
Stockton, Calif. MSA (69.3 percent), the Madera, Calif. MSA (68.7 percent),
the El Centro, Calif. MSA (68.1 percent) and the Las Vegas MSA (67.5 percent).
Additionally, 26.9 percent of home sales nationwide sold for less than what
the seller originally paid.

"The decline in the percentage of homeowners with negative equity is a
positive sign, and is directly attributable to the stabilization of home
values from the second quarter to the third," said Zillow Chief Economist Stan
Humphries. "It is also attributable to many homeowners who were previously
underwater on their mortgage losing their homes to foreclosure.

"The next several months will be critical to the housing market. Previously,
we'd been expecting to see increasing foreclosure rates during the real estate
market's slow winter season, a confluence of events that would likely drive
inventory up and prices down. But now, with the extension of the $8,000
first-time homebuyer tax credit and a new $6,500 credit for some repeat
homebuyers, we could see a bump in demand that could partially offset the
increased supply of foreclosed homes on the market. The credits are likely to
bring continued stabilization in prices over this period, versus the price
declines that we almost certainly would see otherwise. Whether this
stabilization will be sustainable after the tax credits expire, however, is
yet to be seen. Some of the demand that we are buying with tax credits we are
also borrowing from the future, and will likely have to pay for later in the
form of weaker-than-normal demand."

Some markets across the country showed encouraging signs in the third quarter.
Home values increased year-over-year in 24 of 156 MSAs and remained flat in an
additional 16. Only nine MSAs -- including the Merced, Calif., State College,
Penn., and Salisbury, Md. MSAs -- showed increasing year-over-year declines.

The Milwaukee and Boston metropolitan statistical areas were the largest
markets to show positive year-over-year changes in home values, with the
Zillow Home Value Index rising 2.6 percent in Milwaukee and 1.6 percent in
Boston.

Homes % of
Q3 When Fore- Sold Single-
Zillow Q3 % Market closure for Family
MSA Home ZHVI% Change was Re-Sales a Loss Mortgages
(ranked by Value Change from Last at (% of (% of with
population Index (YoY) Market Current all Sept. all Sept. Negative
size) (ZHVI) Peak Level Sales) Sales) Equity

United
States $190,400 -6.9% -20.5% 2004-Q2 21.4% 26.9% 21%

Best-performing markets
Fayetteville,
NC $123,200 10.8% 0% 2009-Q3 11.3% 5% 15.5%
Cumberland,
MD $83,600 9.1% 0% 2009-Q3 2.9% 6% 6.8%
Gainesville,
GA $141,700 7.7% -16% 2005-Q1 n/a n/a 12.7%
Rochester,
NY $125,500 6.2% 0% 2009-Q3 5% 6.7% 7.9%
Green Bay,
WI $150,100 5.3% 0% 2009-Q3 5.2% 17.6% 10.3%

Worst-performing markets
Merced,
CA $96,300 -38.9% -72% 1998-Q3 74.2% 46.1% 72.2%
Las Vegas,
NV $134,600 -31.6% -55.7% 2001-Q2 67.5% 51.5% 81.8%
El Centro,
CA $122,400 -28.6% -51.7% 2002-Q3 68.1% 42.8% 45.5%
Fort Myers,
FL $120,300 -26.7% -59.9% 2001-Q4 n/a 46.7% 60.5%
Stockton,
CA $154,500 -24.8% -62.4% 2000-Q4 69.3% 56.8% 66.9%

The full national report, in its new, interactive format, is available at
www.zillow.com/local-info. Additionally, in most areas data is available at
the state, metro, county, city, ZIP and neighborhood level.

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(1) Negative Equity indicates that the current home value as of Sept. 30, 2009
is less than the original mortgage. To be conservative, principal payments and
equity withdrawals since initial loan origination have been excluded from the
analysis, which is consistent with standard reporting practices. This metric
looks at negative equity of single-family homes with mortgages.

(2) The data in Zillow's Real Estate Market Reports is aggregated from public
sources by a number of data providers for 156 Metropolitan Statistical Areas
dating back to 1996. Mortgage and home loan data is typically recorded in each
county and publicly available through a county recorder's office.

(3) The Zillow Home Value Index is the median Zestimate valuation for a given
geographic area on a given day and includes the value of all single-family
residences, condominiums and cooperatives, regardless of whether they sold
within a given period. The Home Value Index at the national level is
calculated using a weighted average of the median home value for each county.
It is expressed in dollars and is for a particular geographic region.

(4) Foreclosure re-sales captures mostly sales of bank-owned (REO) homes. It
measures sales of homes that were foreclosed on in the previous 12 months.

SOURCE Zillow.com

Katie Curnutte of Zillow.com, +1-206-757-2785, press@zillow.com