Home prices dropped 2.6% nationwide during the last three months of 2010, pushing more borrowers underwater, according to a quarterly real estate market survey from Zillow.com.
Now 27% of homeowners with mortgages owe more than their homes are worth. That’s up from 23.2% a quarter earlier.
That will surely lead to higher foreclosure rates soon. That’s because being underwater is second only to unaffordable payments in leading to foreclosure, according to Zillow’s chief economist, Stan Humphries.
Additionally, the report found that more than one-third of all homes were sold at a loss in December. That trend has been on a steady uptick for the past six months, as homeowners try to find ways around foreclosure or out from under their homes.
The so-called “robo-signing” events of the fall also forced the number of underwater mortgages higher.
When banks’ foreclosure paperwork came under scrutiny, many halted all repossessions until they could straighten things out. With foreclosures no longer being cleaned out of the system, more homes stayed underwater rather than moving on to foreclosure.
The moratoriums have been only temporary, however, and the defaults that had been stopped up in the foreclosure pipeline could come out in a gush over the next few months.
And any bump in the number of foreclosures adds to the likelihood that more homes will be dumped onto an already bloated market. That would just further depress home prices, continuing the vicious cycle that has plagued the industry for several years.
The drop in home values caused by the mortgage crisis has resulted in at least one positive outcome: Prices have fallen so far and so fast that home affordability is back to pre-housing boom levels, according to a new report.
After reaching a peak in late 2005, the ratio of home prices to annual income fell to its lowest levels in 35 years last September, according to data compiled by Moody’s Analytics, which tracked median home prices and annual incomes in 74 markets.
By that measure, housing affordability at the end of September had returned to or surpassed the average reached between 1989-2003 in 47 of those markets, The Wall Street Journal reported, noting that most economists believe the housing boom took off in 2003.
“Based on incomes, this is as affordable as it gets,” said Mark Zandi, chief economist at Moody’s Analytics. “If you can get a loan, these are pretty good times to buy.”
Though homes have become affordable, an increasing number of people who bought as the market was rising toward its peak are finding their homes are now worth less than the amount owed on them, also known as being “underwater.”
More than a quarter of households with a mortgage were underwater at the end of December, up from 23% in the third quarter, the Journal reported, citing data compiled by real estate website Zillow.com. The increase was attributable to a further decline in home prices and the temporary cessation of foreclosures by banks, which had halted the practice to correct errors in document handling.
Two separate industry gauges released recently indicate that despite the ups and downs seen in monthly reports on home prices over the last year, residential property values ended 2010 relatively unchanged from 2009 levels.
Reports from both Integrated Asset Services (IAS) and CoreLogic point to level ground over the 12-month period, although consecutive month-to-month declines were the dominant pattern during the latter part of the year.
IAS says one hopeful sign for real estate arrived in a report from the private research group the Conference Board that showed consumer confidence in January climbed to its highest level in eight months as Americans became more optimistic about job prospects. Moreover, the share of people who said they intended to buy a home rose to 2.2 percent, the second consecutive gain after November’s 1.7 percent.
IAS stressed, however, that the burning question now is whether an improving consumer outlook will be offset by the drag from rising mortgage rates and the glut of distressed properties for sale. Many believe the enormous supply overhang of existing homes, particularly when considering all those in or soon to be in foreclosure, promises to keep pressure on prices for some time.
CoreLogic says it’s reading the data as “a sign that the largest declines are over,” considering the company recorded double-digit drops in residential property values in both 2008 and 2009.
Mark Fleming, CoreLogic’s chief economist, said “Despite the continued monthly decline in home prices and year-over-year depreciation, we’re encouraged that on an annual basis we’re unchanged relative to a year ago.”
Low mortgage rates and home prices helped fuel a sharp increase in home sales during the month of December, according to the National Association of Realtors.
The group says existing-home sales during the month took place at an annual rate of 5.28 million, which was up more than 12 percent from the previous month as analysts said the report was a good way to end the year.
“The December pace is near the volume we’re expecting for 2011, so the market is getting much closer to an adequate, sustainable level,” said Lawrence Yun, NAR chief economist. “The recovery will likely continue as job growth gains momentum and rising rents encourage more renters into ownership while exceptional affordability conditions remain.”
The rising pace of sales also helped drive down the nation’s housing inventory, which has been inflated for several months, dropping it from 9.5 months to 8.1 months. A balanced market, according to the group, has roughly a 6-month supply.
One of the biggest reasons for higher sales is that home prices have fallen significantly from the peak levels from the housing boom. According to the Case-Shiller home price index, home prices in October were roughly the same as they were in mid-2003.