More tough news for Twin Cities metro homeowners surfaced this morning as home values in the Minneapolis-St. Paul metropolitan area slid 4.6 percent in March from a year ago.
More troubling, the real estate website Zillow.com calculates that more than 268,000 Twin Cities area single-family homeowners with mortgages owe more than their homes are worth. That number is about 41.2 percent of the total. That compares with an estimated national average of 23.3 percent of single-family mortgages with negative equity, according to the report.
Such “underwater” mortgages in the metro area swelled by about 14,000 from December to March and pushed the metro area’s ranking up one place to No. 25among 135 metropolitan statistical areas (MSAs) tracked by Zillow.
That grim picture for the first quarter ended March 31 showed the Zillow Home Value Index (ZHVI) of $184,500 for the entire metro area also fell 0.6 percent from February to March. The home value index decline actually improved from the 5.3 percent year-over-year decline Zillow reported for February, but the number of underwater mortgages, which is only reported quarterly, continued to climb from December.
Years of easy loan terms requiring little or no money down contributed to the significant rise in mortgages with negative equity as home values slumped the past two years. In 2006, about 4 percent of home mortgages were “underwater,” according to Moody’s Economy.com. That total rose to 6 percent in 2007, 16 percent in 2008 and hit 24 percent nationwide at the end of last year.
The continuing growth in negative-equity home mortgages, combined with high unemployment, continues to feed the pipeline of home foreclosures, which some industry insiders have estimated will continue to grow through the end of next year, then level out at a higher-than-normal rate through the end of the decade.
In March 2009, the Obama Administration launched the program Making Home Affordable (MHA) program to help homeowners who may be at risk of default to modify the terms of first and second mortgages. Minnesota recently ranked 15th among the states in the number of mortgages modified under the program.
In the seven-county Minneapolis-St. Paul Statistical Metropolitan Area, only Anoka (0.2) and Scott (4.2) counties saw home values increase year over year, according to Zillow’s calculations. The largest percentage drops were charted in Minnetrista (-24.1), Independence (-24.1), Watertown (-22.5), Lilydale (-20.9), and Lake Elmo (-20.7). Cities and towns showing the largest home value increase were Centerville (12.5), Circle Pines (12.0), New Market (11.6), Lexington (11.2) and New Prague (8.7).
Different measure shows price uptick in February
Zillow.com is a real estate website that estimates the value of all homes, including condominiums, across the country and in large metropolitan areas, based on a variety of data. The widely quoted Case-Shiller Index, which is calculated from data on repeat sales of single-family homes only, most recently showed continued month-to-month declines in February for the metro area but a more hopeful year-over-year increase of 3 percent.
Zillow claims that by incorporating data beyond recent home sales, their index more accurately reflects what is happening across the spectrum of residential properties. If a particular category of home is “hot,” such as lower-priced homes have been recently, with the first-time homebuyer incentives, home value data derived only from sales can be misleading, argued Zillow spokesperson Alison Paoli. “By looking at values of all homes (including condominiums and homes that have not recently sold) the median values stays fairly constant over time,” she said.
Nationwide, U.S. home values fell 3.8 percent year over year, and 1 percent quarter over quarter, to $183,700, marking the 13th consecutive quarter of year-over-year declines, according to Zillow. Home values declined year over year in 106 of the 135 MSAs tracked by Zillow. Foreclosures reached a new peak in March, with more than one out of every thousand homes (0.11 percent) in foreclosure.
However, home values in several large California markets — the Los Angeles, San Diego, San Francisco, Santa Barbara and Ventura MSAs — have stabilized significantly in the past year, marking what Zillow says may be a bottom. Home values in those markets have risen significantly for at least the past 10 months, after values in all five markets reached a low point in April or May 2009.
“It’s a very positive sign that several large markets have hit what appears to be a tentative bottom in home values,” said Zillow Chief Economist Dr. Stan Humphries in a press release. “While this is no guarantee that home values there will not fall again, it is more likely than not that they will remain above their lowest point last year.
The statement continues: “However, we continue to have concerns about other factors playing out in markets across the country. We suspect that the homebuyer tax credits are, for the most part, stealing demand from later this summer, rather than creating new demand. Even with the tax credits in place during the first quarter, inventory levels were rising, and home values continued to decline at a steady clip, rather than steadying. Because of these factors, we believe national home values are more likely to reach bottom in the third quarter of 2010, rather than in the second quarter, as we had hoped. When we do get there, we expect the high rates of negative equity and foreclosures to keep national home value appreciation near zero for some time, possibly as long as five years.”