U.S. Home Values Set To Plummet By $1.7 Trillion This Year

Property valuation site Zillow says that signs of stability in the housing market are vaporizing, and U.S. home values are poised to drop another $1.7 trillion this year.

The impact varied by city, but, overall, though the year started out strong, the “green shoots” failed to take root and the dust storms of recession blew them away.

As the correction continues, unbuoyed by external intervention, Zillow sees prices bottoming out sometime in 2011. They predicted average appreciation rates to turn “sometime in the next three to five years.”

In the meantime, for borrowers who become “underwater,” or owe more on their home than it’s worth, the situation can get drastic.

Selling is an option, and if you can do it, it can be preferable to throwing money down a pit, even if you have to take a loss. Most would love to refinance, but that’s hard to do with a negative equity situation. Some homeowners have had luck with the HARP program set up by the government specifically to help underwater borrowers refinance.

Early 2010 Housing Stabilization Fizzles; U.S. Homes Set to Lose $1.7 Trillion This Year [Zillow]

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  1. DurkaDurkaDurka says:

    Or if you like your home and aren’t losing too much money, you could simply stay in it. The problem is people treat there homes like they are going to flip them and make money on it when the whole purpose of a home is to live in it.

    • obits3 says:

      This.

      I don’t get people who call thier home an investment. It is a consumption item just like your car. Why do most people sell their cars? To help cover the cost of another car! The same goes for houses. I don’t know of many people who sold & pocketed the profit. Most seem to use it as an excuse to get a bigger house (which comes with higher property taxes and maintenance cost).

      • c!tizen says:

        Exactly!

        I bought my house because I was tired of renting and wanted a place to live that would eventually be mine outright. I bought a little bigger than I needed so I have room for me and my family to grow. I can see why some people bought to resell, but I don’t get why they get all cranky when it blows up in their face. If you see your home as a flippable investment then you should be prepared to take a loss on it if the market deems it an unfavorable commodity.

        I do see my home as an investment, but I see it as an investment in my retirement, my future, my families future, not my stock portfolio.

      • Fred Garvin says:

        Buying a house for most should be about locking down your monthly payment, paying it off early if you can, earning more as you age while paying the same each month for housing, and having full ownership of your home and no mortgage by the time (or well before) you retire.

        Do it right and at some point well before you retire the place is paid off and what went to the mortgage can go toward retirement. Once you get to retirement, with no house payment and hopefully no other debts, your living expenses are nominal.

        This is the American Dream. It’s definitely not going beyond your means to buy a fabulous home with the intent of turning it five or ten years later for a huge profit or thinking the equity you gain over a longer time will fund your retirement.

    • nova3930 says:

      Exactly. Shelter is necessary to live.

      Owning a home is a way of securing shelter that MIGHT allow you to recoup some of the $$ you put into it, as opposed to renting where you are guaranteed to never see that $$ again…

      • obits3 says:

        It is a risk equation. A home gives you equity (more money saved), renting gives you job flexibility (more money earned).

    • MaxH42 thinks RecordStoreToughGuy got a raw deal says:

      Damn, you beat me to it; I spent too long editing my post.

    • lolBunny says:

      I was thinking the same thing. However, I do feel bad for those people who have to move and sell their house for one reason or another. One that I am hearing of a lot lately is people moving out of town or state for a new job, so they have to sell their home.

    • tdogg241 says:

      I don’t think treating your home as an investment is necessarily a bad thing. What *is* a bad thing is failing to realize that investments carry risks, and something as fundamental as housing can’t go up forever.

  2. tedyc03 says:

    When you say “this year” do you mean between now and December 9, 2011? Or by the close of 2010? Because if it’s the latter I have a few properties to sell…

    • There's room to move as a fry cook says:

      Based on only 11 months of data Zillow is going way way out on a limb and predicts a $1.7 trillion drop in values (7%) this year (2010) compared to a $1 trillion drop (4%) in 2009.

  3. Caggeyder says:

    The good news I see in all of this is hopefully in the next three to five years I might be able to buy a house that isn’t $200k more than it worth. That being said, I hope to have a stable, sustainable salary in the next three to five years as well.

    • Harmodios says:

      You live in the DC metro area as well? Any normal house in Northern VA is 600K-700K. (free standing, 5 bedroom). it’s completely ridiculous.

      • obits3 says:

        Wow, I would move before I give away that much of my income to live there.

        • pecan 3.14159265 says:

          To be fair, when Harmodios says “5 bedroom” he/she really means McMansion-size 5 bedroom house. We’re talking three finished levels, minimum of 4,000 square feet.

          There are plenty of homes that are a lot smaller (1,000-2,000 square feet) and are much less than $600,000. One of my friends bought a ~1,500 square foot house for about $250,000.

          • Bativac says:

            I still think that’s insane considering I am in a 60 year old 3,000 SF house that cost me $150k. And I’m in Florida, where foreclosures and artificially inflated home prices are as representative of the state as oranges and alligators,

            • pecan 3.14159265 says:

              Right, but unless you’re in a big metro area, your prices aren’t going to be driven up nearly as much as they are in Northern VA and DC, where the closer you are to the city, the more you have to pay. People lose a lot of context when they just compare home prices. I agree that $600,000+ is a lot of money, but most of the homes in this range are newer, probably 10 years at the oldest. If it’s close to a metro rail station, the price will go up. If it’s near a top ranked school, it might go up. If it’s in a prime real estate location and near the major roads, it might go up.

            • Brink006 says:

              You live in Florida.

          • lettucefactory says:

            It really depends on where you are. Houses inside the Beltway (Arlington, City of Falls Church, parts of Alexandria) still can run you 500K+ for a modest mid-60s rambler. The McMansions are 750K+.

            But western Fairfax is more reasonable (a relative term). The commute is not trivial, though. We lived next door to Vienna Metro for a while and it still took my husband almost an hour to get to his office on the Orange Line. Donating that kind of time to the commute can be a challenge. It was fine when I was still a SAHM, but now that I work and we have daycare pickups to worry about, neither of us has the luxury of sitting on Metro two hours a day.

            My friend bought a house earlier this year, and the closest in she could get with a single family detached that didn’t need significant work for $250K was Manassas. I personally am fine with townhouses, though – actually prefer them now that I have been paying utilities on renting a SFH – but her house is really great. It’s a basic 3 bedroom, older but updated. The schools in her part of Manassas are terrible, though, and she already knows she’s going to have to move when her baby gets older. Those are the tradeoffs.

            People who don’t have kids to worry about or other extenuating circumstances can do okay around here. I envy those people!

            • pecan 3.14159265 says:

              I agree, it depends on where you look. I’ve found some very reasonably priced houses in Falls Church, Arlington, and Alexandria. It just depends on where you want to be relative to a metro line, where the better schools are, and the luck you have to find a house that doesn’t need a lot of fixing. Also, snagging a foreclosure property is probably a matter of luck.

          • shawnamuffin says:

            Exactly what I was thinking. 5 bedrooms, normal? Only in the crazy dreams of American spendoholism.

      • areaman says:

        “it’s completely ridiculous.”

        Are you referring to the prices or because the McMansions got supersized up to 5 bedrooms?

      • Nigerian prince looking for business partner says:

        That’s why I moved away from DC. I didn’t want to live in the suburbs and be a commuter and couldn’t afford a $500,000 mortgage to live in the city. At the time, I as also spending more than $2,000/month on rent, which really wasn’t sustainable in the long term.

        • pecan 3.14159265 says:

          I have a friend who, at one point, was spending $2,100 in rent just because she had to live in DC. It was so silly because she was so desperate to live in the city, and most of the time didn’t even go out during the workweek. So for $2,100 a month, she got the privilege of living in the city where she only went out on the weekends anyway. She could have easily lived right across the border in VA, went the extra 10 minutes to get into the city by metro, and saved at least $500 a month in rent.

          • Nigerian prince looking for business partner says:

            I used to live in Capitol Hill and could walk to work, so it was worth living in town. I also liked the idea of living in a walking neighborhood and such a historic place. There are definitely similar places in Virginia but the nice small towns were incredibly expensive and involved a commute. I absolutely didn’t want to live in a split level on a cul-de-sac.

            I ended up transferring to the midwest and got my fix for a quiet historic neighborhood that was also affordable.

      • falnfenix says:

        and that’s why so many NoVA/DC types moved up to Baltimore, thereby helping the Canton-area condos appreciate drastically before the bubble burst. y’all turned Baltimore into DC-lite. :P

      • qwickone says:

        It’s not SO ridiculous. All of Fairfax county is in that price range and people own those houses because the salaries are commensurate with those prices for a home. I know not everyone in this area makes that much money, but there are enough people living around here that make enough money for those prices to be sustainable for pretty much an entire county. A huge county at that. They government will always spend, so there will always be a lot of money in this area.

        • Harmodios says:

          It’s not just how much you make. If I wanted to, I could get a $2M mortgage, but I just don’t want to spend that much money on a house.

      • NotEd says:

        You could always move.
        We did.
        In the fall of 2008.
        Right in time to experience the whole crash.

        Being a former resident of Montogoery County it seemed like a good plan at the time.

  4. rev_matt_y says:

    I don’t know about other markets, but Zillow consistently values homes in the St Louis metro area about 20-30% higher than any of them ever actually go for, and did so even at the height of the boom. It has not gotten any more accurate in the past 4 years, which is not encouraging.

  5. theblackdog says:

    Meh, most houses are still unaffordable in the DC Metro area if you try to buy it on your own

    • Alvis says:

      That’s nature’s way of telling you to stay away.

      Plenty of affordable housing in West Virginia.

      • failurate says:

        And if things get hairy in West Virginia, you can just put the wheels back on and haul it to Kentucky.

      • pecan 3.14159265 says:

        No amount of money on earth will convince me to move to West Virginia.

        • Nigerian prince looking for business partner says:

          Where do you live now that’s so much better? Every state has their bad parts.

          I’d love to live near the New River Gorge.

    • Harmodios says:

      You know what’s funny? I am able to afford a house in NOVA, but those houses are objectively not worth 700K, never. I rather rent right now.

      • zzyzzx says:

        Same thing in Maryland. Housing is still way to expensive, and it really wasn’t all that bad here before the last housing bubble.

  6. MaxH42 thinks RecordStoreToughGuy got a raw deal says:

    Some of us are still happy that we have a place to live, even if it’s theoretically worth less than it was a few years ago.

    Yes, this does suck for people who have no choice but to move because of job availability or relocation; if that doesn’t apply, I don’t see why this is causing people to hyperventilate. I hear too many people who were not planning on selling any time soon still gnashing their teeth over this.

    • lolBunny says:

      They shouldn’t tho, in a few years their house will be worth more money than it is now, maybe closer to what they initially invested.

      Silver Lining here is that their property tax is less as it is a calculation based on the assessed value of the house. So for those who are staying put for the next 5ish years, enjoy the tax break :)

      • wrjohnston91283 says:

        The municipalities will simply readjust the mil rate and you’ll end up paying the same.

      • I-man says:

        Not where I come from (Fairfield County, CT). Here, houses are assessed once every five years. they come up with a value based on a formula that takes into account square footage, number of bedrooms, garage size, etc. and completely ignore condition of the house, location, or what it sold for. They then set the mil rate (property tax rate) based on how much the grand list comes out to and what the town’s budget needs are. So every five years, your assessed value may shoot up (well, maybe not the next time around) but they drop the mil rate and you end up paying about the same in taxes anyway.

      • MaxH42 thinks RecordStoreToughGuy got a raw deal says:

        I’m talking about people who have no choice but to move if they want to keep earning anywhere near their current income, and it happens all too often. And while it would be a good plan to move (rent or buy in your new location), then rent out the first house and use the rent to pay that mortgage, you need to have the resources to keep paying that first mortgage if your property is vacant for while or needs major repairs, because s**t happens.

      • lucky13 says:

        That reduction of property taxes didn’t happen for us in Colorado – our outgoing governor violated our state constitution (with the state supreme court’s blessing) to freeze our property taxes at their highest level just before the bubble burst – even though property taxes are re-assessed every other year, they can only go up from here. The only saving grace was that our property values didn’t drop as much as other parts of the country.

  7. Harmodios says:

    Very good! Economists are expecting prices to drop for at least a few more years. Then I will be ready to buy myself.

    • obits3 says:

      I have a friend who just bought a house. I joke with him that he is my guinea pig to see how the neighborhood turns out (then I’ll buy a house used).

  8. MikeF74 says:

    Our sob story:

    We moved before selling our old place (moving closer to wife’s parents since we just had twins and no family nearby). Her father bough the new place in cash. Just after sprucing up the old place to sell (took 2 months and $10K), the market did its first tank. Took over a year to sell that place. Once that sale was done with, we signed a mortgage with her father at his original purchase price (which was a little less than current value, but we were obligated).

    Now, however, the place is worth 1/3 less (deeply underwater). But the worst part is that we couldn’t walk away even if we wanted too since her father owns the note. Well, we could, if we wanted to destroy our relationship. If it was a bank we at least have that option (as unpleasant as it is).

    We wanted to move to a better location at some point. But I don’t see that happening now. We’re stuck in this town for probably 15 years or more (until we build up a decent equity to value ratio).

    • TuxthePenguin says:

      This is why I tell my clients never to borrow from family. Turns things strange and wierd more often than not.

      But, you already have, so here’s my suggestions.

      #1 – if you can afford the payment, don’t worry about it. Yes, it stinks to be underwater, but just look at it as long-term rent. Sometimes life sucks.
      #2 – if you’re stretched thing, ask him to “refinance” the note on a longer term. Or ask if he could “pay” you for various odd-jobs – help paint his house, $1k off the note. Its family, be creative.
      #3 – if you NEED to move, there is no reason the two families (the father and yours) cannot sell the house. Whatever is left being owed – agree to repay over ten years. Your family, he should be able to trust you.

      • Clyde Barrow says:

        I was thinking of selling my large, corner lot home but changed my mind after I talked to this girl that I met on a dating site in 2009. She is a social worker and she told me that many of the folk that bought homes, that never should have been able to, are now in apartment complexes and it’s like a “3rd world country” in some places. She had clients whose doors were regularly broken down while at work, sometimes two times a month that summer and were getting robbed and assaulted. This does not include the fighting, banging on the walls, and breaking of things 24/7 because a lot of these tenants don’t care. Recently I went to a co-workers place (apartment) for game night and there is one thing that never changes; the apartment “smell” that no matter how much you try to clean it, it always comes back. It’s that ordor of the past thousand tenants that you just don’t know anything about. lol.

        Glad I kept my house.

        • Nigerian prince looking for business partner says:

          The same thing can happen to a neighborhood of single family houses too. It’s not uncommon for slumlords to buy up foreclosures and shoddily turn big old houses into Section 8 apartments.

    • ElizabethD says:

      Our story is somewhat different in exact details (no parents involved; ours are all deceased) but with the same result. The house that took us an extra year to sell (while carrying two mortgages while we rehabbed the new house) lost $70K in value by the time it sold, and we were lucky to get that much given what’s happened since.

      The house we rehabbed and live in now is great, but in our city’s property revaluation it had lost $150K of its value since we took out our mortgage. So, we can’t ever leave. Good thing I love it here.

      Silver lining (minuscule, but whatevs): Our property taxes went down quite a bit.

      Sorry you are stuck.

      • Loias supports harsher punishments against corporations says:

        Your city’s reevluation is for tax purposes, it does not equal sellable value, which is technically arbitrary.

  9. Hi_Hello says:

    sweeet, I was looking to buy next year or two.

  10. MonkeyMonk says:

    I virtually every experience I’ve had with Zillow their house valuations are for crap (way too high in most cases and way too low in another). I’m not sure why anyone would take their prognosticating too seriously.

    • Portlandia says:

      That’s exactly what I was thinking!

    • benbell says:

      I was going to post a comment in line with this.

      Zillow is crap and I wouldn’t really trust anything they publish.

    • johnva says:

      This estimate is an aggregate thing, rather than an individual estimate. So it’s a lot less likely to be seriously wrong than their estimate for an individual house. If they’re sometimes wrong high and sometimes wrong low, then it should basically average out.

      Also, on what basis do you judge that their estimates are too high or too low? The “value” of anything is what someone is willing to pay for it at any given time, and so it’s kind of hard to claim that you can objectively know what a particular house is worth. If the housing market is dropping overall, then the values reported should be dropping. Even if people aren’t willing to sell for that price (people have lots of reasons that they don’t sell even if their house’s value has dropped: most notably, that they are underwater, but also because they are irrational and can’t emotionally bear to take the hit).

      Finally, it’s not like it’s some outlandish claim to say that the U.S. housing market is losing huge amounts of paper “value”. It’s obvious that it is, so the only debatable thing is how much. And again, all this was predictable if you simply looked at a chart of housing values vs. per capita income or vs. GDP. Values are simply returning to the realm of economically supportable reality.

      • shawnamuffin says:

        Yes, thank you. Value IS what someone will pay for it, and housing prices should reflect average wages.

      • Ragman says:

        “Also, on what basis do you judge that their estimates are too high or too low?”

        The fact that their estimate on my house has been as high as $15,000 over the county tax assessment (and still has yet to get anywhere near the tax value), and over $20,000 higher at the time of my last appraisal for re-fi.

        The comparison homes in my appraisal are same builder, same neighborhood, same age, and same approximate size. Recently, their valuation has been tracking down towards the tax assessment.

        At my highest Zillow estimate:
        Appraisal: $180,000
        County tax: $190,000
        Zillow: $205,000

        But, other than their crappy valuations, it’s actually a pretty decent site for checking out houses.

      • MonkeyMonk says:

        “Also, on what basis do you judge that their estimates are too high or too low?”

        I have a lot of experience buying and selling real estate so I know what the houses ultimately sell for and I know what Zillow thinks the house is worth. They’re rarely in the ballpark.

        Zillow is a pimple on the ass of the RE industry. You don’t know how many sellers I come across who are expecting a completely unrealistic price for their house simply because “Zillow said so.”

    • rambo76098 says:

      No kidding. There’s a ton of condos in my zip code with a lot of MLS sales history available for the area, but yet they say they can’t estimate the values. Zillow is useless. Selling prices of stuff in my area has increased slightly since I bought my unit in the summer, so I’m giving their guesses a ‘meh’ at most.

  11. Scuba Steve says:

    Good news for first time home buyers!

  12. Liarbyrd says:

    Good news for me. I’m just starting to look at buying a house.

  13. Jevia says:

    Interesting. Zillow used to provide you with an estimated value for your home, and the history of its sales, etc. Now it only shows those homes that either are currently for sale or which recently sold. I can no longer use it to get an idea of my home’s current value.

  14. areaman says:

    Does this mean it’s not a good idea to use home equity as an ATM?

    /piling on.

  15. Jabberkaty says:

    Good. The proces are over-inflated. Maybe this will make them become affordable for people who have saved properly.

  16. BrianneG says:

    Yay! We’re thinking about looking/buying in Summer 2011. Let’s hope interest rates stay low till then too.

  17. ckspores says:

    Good. Now all my holier-than-thou home-owning family and friends can get off my back about how I have to buy NOW NOW NOW.

    • ElizabethD says:

      Keep on renting. I wish we had sold our former house at peak market 5 years ago and rented ever since. Instead we ended up paying mortgages on two houses for a year, lost money in our sale, and the value of our current house lost $150K in three years. We could kick ourselves for not selling earlier (the first house) and renting and waiting for the RE market to cave.

  18. ElizabethD says:

    Sigh. It’s a good thing I love where we live, because we’re sure never leaving.

  19. friendlynerd says:

    Sounds like our collective Zestimate went down. No wait, it’s up 6.3%

    Damn, it’s down 2.4%. NO, up 4%….let’s see what tomorrow brings.

  20. Sian says:

    And I’m closing on a house next week.

    Out here I just don’t see home values getting lower. Tampa area was hit hard and I think things have pretty much bottomed out.

  21. rdking says:

    zillow has no idea what homes are really worth… ive seen values for home jump up and down 50k in a few months…
    their valuations are laughable

  22. TheGreySpectre says:

    As someone hoping to buy a first home in early 2012 this is fantastic news to me. Kind of sucks for most people who own homes already though.

  23. StevePierce says:

    You haven’t lost money if you don’t sell it. It is still a home, if you have a job and can afford the mortgage, stay put.

    • Mama Mayhem says:

      What about if they are building a school across the street from one’s neighborhood for the severely emotionally disturbed (for students up to age 24), that’s a pretty good reason to need to move.

  24. SpendorTheCheap says:

    I’d like to know what Zillow thinks are “average appreciation rates”.

    That big NY TImes article from a few years back about Dutch housing, and 100 years of housing data in the US put that number at about 2% above inflation.

    I think people in this country still think it should be about 10% per year.

    • johnva says:

      It SHOULD BE low. Housing should be a “boring” investment. Allowing wild fluctuations in home prices is seriously socially disruptive in addition to being very economically disruptive. We’ve simply got to stop letting bankers run our country.

  25. SlappyFrog says:

    Value of the house is irrelevant unless you have to move in the near term.

    You secured a mortgage for a payment of ‘x’ dollars for ‘y’ months. The house was worth ‘z’ to you at the time of purchase which is what ‘x’ is based on. Live up to that agreement.

  26. dush says:

    great! home prices need to keep falling so eventually people will be able to afford them again.

  27. Nobby says:

    OK, since my house will be worth less will my property taxes decrease?

  28. kmw2 says:

    Hey, you know what would be great? When home prices adjust downward enough that we can think of them as places to live instead of well-decorated investment funds.

  29. Draw2much says:

    I take a small amount of comfort that even if we can’t sell our house when the time comes, we will be able to rent it out with no problem. Living near a military base has it’s perks.

  30. Baccus83 says:

    Whatever. The Zestimate for my home depreciated $10,000 in 30 days, while comps across the street are selling at higher prices than usual. Something’s up with their algorithm.