Upside Down Homes

May 11th, 2008 @ 4:18 PM by Alden Smith

An interesting thing is occurring.  Property values are dropping as everyone knows.  What effect does this have on the market?  I did some checking today, and here is what I found.

If you bought a home in 2006-2007, the property has decreased in value.  This affects 77% of buyers.  If you bought in 2007, the percentage is 71%.  Market correction?  To me, this is.  Many homes have been overvalued for a very long time, and this can be seen in locales such as SoCal and the Florida area.  In a news article from cbs4.com, they stated that sellers with homes listed at 200,000 dollars are competing with an identical new home built by developers for 80 thousand.  That is kind of a no brainer if you are in the market and bad news if you are selling.

A study by Zillow, a real estate mortgage evaluator, showed homeowners who bought a house in the last year run a 71% chance your mortgage is upside down. If your home was bought in the last two years, the likelihood of your mortgage being upside down jumps to 77%. The problem with this is that it shows only what was sold.  Joseph Castaneda, of Home Appraisals, Inc, said “We’ve experienced a 20% drop in values over the past year. So if someone put down 20% or less, that equity has been wiped away.”  That puts you back to square one, with whatever you put up and have paid being effectively wiped out.

Appraisers CBS4 spoke with said that they see even bigger price drops further down the road.  The end of this is clearly not in sight.  Perhaps the fact that a home is high valued because it is located in a particular neighborhood may see some change sometime soon.  Certainly, the savings of 120 thousand dollars must be seen by some as a blessing in disguise.