Almost a Quarter of U.S. Homeowners Are Underwater

By Daniel Taub

May 6 (Bloomberg) -- A growing number of U.S. homeowners owe more than their properties are worth after prices extended their two-year decline in the first quarter, Zillow.com said.

About 21.8 percent of all owners were underwater as of March 31, the Seattle-based real estate data service said in a report today. At the end of the fourth quarter, 17.6 percent of homeowners owed more than their original mortgage, while 14.3 percent had negative equity three months earlier.

Property values dropped 14 percent from a year earlier in the first quarter, reducing the median value of U.S. single- family homes, condominiums and cooperatives to $182,378, Zillow said. The decline has left about 20.4 million of the U.S.’s 93 million houses, condos and co-ops with loans higher than the properties are worth. The gain in underwater homeowners will lead to more bank repossessions, Zillow said.

Many owners “would be more willing to bear the financial consequences of bankruptcy or foreclosure,” Stan Humphries, Zillow’s vice president of data and analytics, said in an interview. “You are going to continue to see home prices fall for the rest of this year and some portion of next year.”

The recession cut home values by $2.4 trillion last year, First American CoreLogic said in a March 4 report. More than 8.3 million U.S. mortgage holders owed more than their properties were worth and an additional 2.2 million borrowers will be underwater if prices decline another 5 percent, the Santa Ana, California-based seller of mortgage and economic data, said in the report.

Unemployment Rising

The data demonstrates the challenges facing Federal Reserve Chairman Ben S. Bernanke and the Obama administration as they seek to spark a housing recovery. The Fed has pushed 30-year fixed home loan rates to a record low by purchasing mortgage- backed securities. The jobless rate jumped to 8.9 percent last month from 8.5 percent in March and employers cut at least 600,000 workers from payrolls for a fifth straight time, according to the median estimate in a Bloomberg News survey ahead of a May 8 Labor Department report.

The U.S. market with the biggest drop in home values in the first quarter was Salinas, California, where the median price fell 37 percent to $301,793 from year earlier, Zillow said.

About 32 percent of all homes there were worth less than what’s owed on them, Zillow said. Among the worst-performing markets, Salinas was followed by Redding, Stockton, Madera, and Vallejo-Fairfield, all in California. The company estimates values for homes, whether or not they are sold in the period tracked, in 161 metropolitan areas.

Foreclosures Dominate

In 85 of the markets tracked, the annualized home-value change over the past five years was negative or little changed. About 20 percent of all home transactions in the past 12 months were foreclosures, and short sales made up about 12 percent. A short sale is when a home is sold for less than the outstanding mortgage balance.

The data for Zillow’s study dates to 1996 and comes from public records, the closely held company said. Its mortgage figures come from information filed with individual counties.

The decline in values is holding potential sellers back from putting their properties on the market, the company said. In a separate survey of homeowner sentiment, 31 percent of homeowners said they would be at least “somewhat likely” to put their property up for sale in the next 12 months should they see signs of a recovery.

Harris Interactive surveyed 2,123 adults, 1,266 of whom were homeowners, on line last month, Zillow said.