The percentage of borrowers underwater on their mortgage declined during the second quarter, but that welcome change of pace could come to an abrupt end as home values are again beginning to fall in markets across the country.
The real estate data provider Zillow reported Monday that negative equity — which refers to the percentage of single-family homeowners with mortgages who owe more on the loan than their home is worth — dropped to 21.5 percent in Q2.
That’s down from Zillow’s negative equity reading of 23.3 percent in the first quarter of this year, and 23 percent during the second quarter of 2009.
The Zillow Home Value Index shows that home values, too, continued to drop in the second quarter, but the Seattle-based company says the rate of decline decelerated from the first quarter.
Zillow reports that home values in Q2 fell 3.2 percent year-over-year and 0.6 percent from the first quarter. It marked the second consecutive quarter of slowing declines. Based on Zillow’s market data, the national median home value last quarter was $182,500.
Conditions varied among individual markets across the country. In California, where both federal and state tax credits were available to some homebuyers, more than a quarter — 27.8 percent — of markets tracked by Zillow saw increases in home values in the past year.
Home values in five California markets have increased for the past five quarters, according to Zillow’s study, and four of those have increased by more than 5 percent since the second quarter of 2009. The Zillow Home Value Index was
up 7.3 percent year-over-year in the San Diego metropolitan statistical area (MSA); up 5.9 percent in the San Francisco MSA; up 5.6 percent in the San Jose metro area; and up 5.5 percent in the Los Angeles MSA.
Dr. Stan Humphries, Zillow’s chief economist, points to the double tax credits in California for stimulating housing demand there and raising property values. But he says the rapid rates of appreciation are unsustainable. He warns that once all incentives are removed the gains will surely slow, although Humphries says it is unlikely home values in California will re-test the low points reached in 2009.
Meanwhile, home values in Florida and Arizona continued to show dramatic declines. In the Miami-Fort Lauderdale MSA, they fell 15.2 percent year-over-year, while home values in the Phoenix metro were down 11.8 percent from a year ago.
Humphries says markets like Miami and Phoenix are not yet showing signs of reaching a bottom in property values, with high inventory levels still proving to be a challenge.
He called the picture of individual local markets “a mixed bag,” but said nationally, home values are moving in the right direction as rates of decline continue to decelerate.
However, Humphries says there is a large unknown on the horizon, since second-quarter numbers are still heavily influenced by the federal homebuyer tax credits. Home sales are declining significantly in the post-tax credits environment, but the impact of falling home sales on already-declining home values is yet to be seen, according to Humphries.
“Recent trends in home values suggest the nation could reach a bottom in the latter half of 2010, but we continue to be cautious about the impact of declining home sales,” Humphries said.
Zillow also reported that foreclosures again reached a new peak in June, with more than one out of every 1,000 (0.11 percent) U.S. homes foreclosed on during the month.
According to Zillow’s study, foreclosure resales fell in June, making up 16.9 percent of all home sales during the month, down from a 2010 high of 19.8 percent in February. Foreclosure resales continued to be high in most markets hit hardest by value declines, the company said.
Additionally, Zillow found that more than one-fourth — 26 percent — of the homes sold in June went for less than what the seller originally paid.