View Full Version : Economics America's Most Underwater Housing Markets

The Mad Crapper
03-23-2010, 11:14 AM
America's Most Underwater Housing Markets
by Luke Mullins
Friday, March 19, 2010

Negative equity--what you have when you owe more on your home loan than the property is worth--is one of the defining features of the still-unfolding mortgage crisis. It's a particularly nasty problem because it can lead to all sorts of unpleasant outcomes for the real estate market and the economy as a whole.

Having negative equity, which is also known as being "underwater" on a mortgage, makes homeowners more likely to end up in foreclosure. It restricts a borrower's ability to refinance or buy another home, which in turn stifles demand for housing. It even reduces the flexibility of the labor market, since underwater homeowners are less willing to leave town to take a different job, says Stan Humphries, the chief economist at Zillow.

"We have never had negative equity like this at the national level in as many different regions as we have now," Humphries says. To get a better sense of the cities with the greatest concentrations of negative equity, Zillow provided U.S. News with data that detail the percentage of mortgage borrowers who are underwater in 142 distinct markets throughout the country. Based on this research, we compiled the following list of America's most underwater housing markets. (Please note: We chose no more than one city per state.)

1. Las Vegas

Las Vegas was ground zero for the housing market's historic boom and bust. Loose lending standards and speculative fervor helped send home prices surging more than 104 percent from 2002 to their 2006 peaks, according to Moody's Economy.com.

"We all knew in our hearts it was unsustainable and there had to be a correction," says Larry Murphy, the president of SalesTraq. That correction came as the housing bubble popped and the economy tanked: Home prices in Las Vegas fell more than 56 percent from 2006 to the third quarter of 2009. This steep decline has pulled a vast swath of mortgage borrowers underwater.

"If you bought a home in Las Vegas since 2004 up to about 2007, whatever you bought--I don't care if you bought a big house or a little house, in a great neighborhood or a crummy neighborhood--it's worth about half what you paid for it," Murphy says.

More than 81 percent of single-family home mortgages in Las Vegas had negative equity in the fourth quarter of 2009, according to Zillow. And it may take 20 years for some of these home values to climb back to the levels they hit at the peak of the housing boom, Murphy says.

2. Merced, Calif.

The housing crisis that has rocked Merced, Calf., was initially linked to rising property values in relatively nearby metropolitan areas like San Francisco. As real estate became increasingly unaffordable in the bigger cities, many would-be home buyers started exploring options in smaller markets, such as Merced.

"A number of people said, 'Hey, I have got a couple of choices: I can get a 1,000-foot condo in San Francisco, or I can move east and I can get myself a fairly significant home for the same price,' " says John Walsh, the president of DataQuick. Although this trend increased real estate demand in Merced, prices appreciated even faster as exotic mortgage products and investor interest hit the market.

Area home prices jumped nearly 129 percent from 2002 to 2006. But after the euphoria subsided, home prices crashed more than 72 percent through the third quarter of 2009. This rapid deflation dragged about 64 percent of single-family home mortgages underwater by the fourth quarter of 2009, according to Zillow. Walsh says it could be 10 to 20 years before Merced home prices reach former peak levels.



The Mad Crapper
04-22-2010, 09:15 AM

The Mad Crapper
04-30-2010, 11:43 AM
Wow, it's spreading to Utah!!!

This is not over, not even close: