Zillow Research Reveals Florida Fair Market Home Values Falling, Underwater Homes Rising: Will You Walk Away From Your Mortgage?

Posted By on May 10, 2011

Zillow, Inc. is a Seattle company which has successfully built a nationally respected real estate research website, Zillow.com, where Zillow accumulates and provides at no charge both estimates of property values as well as detailed listings of real estate for sale across the country.  Today, Zillow is recognized as a company that knows its stuff.  So, it’s no surprise that Zillow’s recent release of its latest market findings would be picked up by news media across the country, especially when the research results have such a big impact, particularly on those of us here in hard-hit Florida.

Zillow Releases Its Latest Findings on the National Housing Market — And It’s Not a Rosy Picture

What is the big deal? Zillow finds that “… [n]egative equity in the first quarter reached a new high with 28.4 percent of all single-family homes with mortgages underwater, from 27 percent in Q4.” You can read the full Zillow discussion of its findings in its May 2011 blog post, written by Stan Humphries and entitled, No Respite From Housing Recession in First Quarter.

John Gitelsohn at Bloomberg picked up the Zillow findings in his May 2011 article, Underwater’ Homeowners Rise to 28 Percent: Zillow and discussed how other real estate market watchers are in agreement.  Morgan Stanley, the S&P/Case-Shiller Composite 20-City Home Price Index, and  RealtyTrac Inc., are also predicting 2011 may be the worst year yet for residential real estate in this country.

The Miami Herald reports on the Zillow findings in its May 9th story, ” Brisk home sales don’t stop decline in prices,” where reporter Toluse Olorunnipa applies the Zillow numbers to our local area: South Florida may be seeing home sales that are doing much better than the national real estate market — good news for our area — but the fair market value of South Florida homes are still in trouble and getting worse if you agree with Zillow’s numbers.  The Herald went to Professor William Hardin of the Florida International University for his take on things: he’s predicting that neighborhood property values will continue to fall – we’re not at rock bottom yet.

How Bad is it Right Now For South Florida?

Zillow has South Florida fair market values at the same level that they were back in 2002.   They’ve fallen almost 13% in the past year when you look at the three big counties of Broward, Miami-Dade, and Palm Beach.  Right now, homes in our area are 55.4% less in fair market value than they were in 2006.  That’s over half of their value, gone.

Falling Fair Market Value Means Rising Negative Equity

As we’ve discussed before, when the fair market value of a home falls, that doesn’t do a thing for the amount due on the mortgage.   To the homeowner, all this means is that he or she may well be facing owing more to the bank than the home can be sold for in the current market.  That’s the big negative equity problem.

The Herald reports that South Florida’s negative equity numbers are high: 47.7 % of all single-family homes carrying a mortgage are underwater right now.  This time last year, that number was 43.5%.  So, negative equity is rising in our own backyard.    In fact, the Miami/South Florida area is one of the hardest hit areas in the country, ranking 6th in the Top Ten – along with New York City, Chicago, Dallas-Fort Worth, Chicago, and Philadelphia.  (For details, check out the Real Estate Market Chart accompanying the Zillow article.)

Are We Back to Talking About Homeowners Walking Away From Their Homes – More Strategic Defaults?

Back in March, we discussed the difficult and stressful spot many Florida homeowners are in – and how there are no easy solutions – in “Underwater Mortgages in Florida: No Easy Answers and No Government Relief in Sight.”

A Florida homeowner who owes more on his mortgage than his home is worth (according to recent fair market values) is stuck. If the mortgage payment isn’t a problem for his budget and it’s the family homestead, then maybe he and his family will decide to ride the storm out. Ten years from now, maybe they’ll be glad they did.

However, for the Florida homeowner who is strapped by their mortgage payment, riding the storm out may not seem realistic. Paying the bank that mortgage payment month after month may not be feasible – or the homeowner may just think it’s not the most financially prudent thing to do with his/her money.

So, are we looking at more Florida homeowners walking away from their homes and their obligation to repay their note? Will they strategically default? Yes, according to Zillow (and others). Yes, I think we are.

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