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Negative Equity Falls in Third Quarter, Home Values Show Short-Term Stabilization

Impending Foreclosures, Homebuyer Tax Credits Likely to Affect Real Estate This Winter:

Foreclosures Expected to Significantly Increase Inventory in 2010, But Possible Tax Credits Could Help Spur Demand, According to Q3 2009 Zillow(R) Real Estate Market Reports

Nov 9, 2009

SEATTLE, Nov. 9 /PRNewswire/ -- The percent of American single-family homes with mortgages in negative equity(1) fell to 21 percent in the third quarter, down from 23 percent in the second, as home values stabilized in the short term and more underwater homeowners lost their homes to foreclosure, according to the third quarter Zillow Real Estate Market Reports(2).


Year-over-year home values in the United States declined for the 11th consecutive quarter, falling 6.9 percent to a Zillow Home Value Index(3) of $190,400. However, the rate of year-over-year decline shrank for the third quarter in a row, meaning home values did not decline as dramatically year-over-year in the third quarter as they did in the second or the first.

In addition, the Zillow Home Value Index remained relatively flat in the short term, declining 0.4 percent from the end of the second quarter to the end of the third quarter. The Zillow Home Value Index measures the value of all homes in an area, and the Q3 Zillow Real Estate Market Reports encompass 156 metropolitan statistical areas (MSAs).

Foreclosure re-sales(4) remained high, making up more than one-fifth (21.4 percent) of all U.S. home sales in September, and made up the majority of sales in several MSAs including the Merced, Calif. MSA (74.2 percent), the Stockton, Calif. MSA (69.3 percent), the Madera, Calif. MSA (68.7 percent), the El Centro, Calif. MSA (68.1 percent) and the Las Vegas MSA (67.5 percent). Additionally, 26.9 percent of home sales nationwide sold for less than what the seller originally paid.

"The decline in the percentage of homeowners with negative equity is a positive sign, and is directly attributable to the stabilization of home values from the second quarter to the third," said Zillow Chief Economist Stan Humphries. "It is also attributable to many homeowners who were previously underwater on their mortgage losing their homes to foreclosure.

"The next several months will be critical to the housing market. Previously, we'd been expecting to see increasing foreclosure rates during the real estate market's slow winter season, a confluence of events that would likely drive inventory up and prices down. But now, with the extension of the $8,000 first-time homebuyer tax credit and a new $6,500 credit for some repeat homebuyers, we could see a bump in demand that could partially offset the increased supply of foreclosed homes on the market. The credits are likely to bring continued stabilization in prices over this period, versus the price declines that we almost certainly would see otherwise. Whether this stabilization will be sustainable after the tax credits expire, however, is yet to be seen. Some of the demand that we are buying with tax credits we are also borrowing from the future, and will likely have to pay for later in the form of weaker-than-normal demand."

Some markets across the country showed encouraging signs in the third quarter. Home values increased year-over-year in 24 of 156 MSAs and remained flat in an additional 16. Only nine MSAs -- including the Merced, Calif., State College, Penn., and Salisbury, Md. MSAs -- showed increasing year-over-year declines.

The Milwaukee and Boston metropolitan statistical areas were the largest markets to show positive year-over-year changes in home values, with the Zillow Home Value Index rising 2.6 percent in Milwaukee and 1.6 percent in Boston.

                                                           Homes     % of
                  Q3                   When      Fore-     Sold     Single-
                Zillow    Q3     %     Market    closure    for      Family
     MSA         Home    ZHVI% Change   was     Re-Sales   a Loss  Mortgages
  (ranked by     Value  Change  from  Last at    (% of     (% of     with
  population    Index   (YoY) Market Current   all Sept. all Sept. Negative
     size)      (ZHVI)         Peak   Level      Sales)    Sales)   Equity

   States      $190,400  -6.9%  -20.5%  2004-Q2   21.4%    26.9%      21%

                              Best-performing markets
   NC          $123,200  10.8%      0%  2009-Q3   11.3%       5%    15.5%
   MD           $83,600   9.1%      0%  2009-Q3    2.9%       6%     6.8%
   GA          $141,700   7.7%    -16%  2005-Q1    n/a      n/a     12.7%
   NY          $125,500   6.2%      0%  2009-Q3      5%     6.7%     7.9%
  Green Bay,
   WI          $150,100   5.3%      0%  2009-Q3    5.2%    17.6%    10.3%

                             Worst-performing markets
   CA           $96,300 -38.9%    -72%  1998-Q3   74.2%    46.1%    72.2%
  Las Vegas,
   NV          $134,600 -31.6%  -55.7%  2001-Q2   67.5%    51.5%    81.8%
  El Centro,
   CA          $122,400 -28.6%  -51.7%  2002-Q3   68.1%    42.8%    45.5%
  Fort Myers,
   FL          $120,300 -26.7%  -59.9%  2001-Q4    n/a     46.7%    60.5%
   CA          $154,500 -24.8%  -62.4%  2000-Q4   69.3%    56.8%    66.9%

The full national report, in its new, interactive format, is available at Additionally, in most areas data is available at the state, metro, county, city, ZIP and neighborhood level.

About® is an online real estate marketplace where homeowners, buyers, sellers, real estate agents and mortgage professionals find and share vital information about homes and mortgages, for free. Launched in early 2006 with Zestimate® home values and data on millions of U.S. homes, Zillow has since added homes for sale, a directory of real estate and lending professionals, Zillow Advice and Zillow Mortgage Marketplace. One of the most-visited U.S. real estate Web sites, with more than eight million unique visitors per month, Zillow's goal is to help people become smarter about real estate in every stage of the home ownership process -- home buying, selling, remodeling and financing. The company is headquartered in Seattle and has raised $87 million in funding., Zillow and Zestimate are registered trademarks of Zillow, Inc.

(1) Negative Equity indicates that the current home value as of Sept. 30, 2009 is less than the original mortgage. To be conservative, principal payments and equity withdrawals since initial loan origination have been excluded from the analysis, which is consistent with standard reporting practices. This metric looks at negative equity of single-family homes with mortgages.

(2) The data in Zillow's Real Estate Market Reports is aggregated from public sources by a number of data providers for 156 Metropolitan Statistical Areas dating back to 1996. Mortgage and home loan data is typically recorded in each county and publicly available through a county recorder's office.

(3) The Zillow Home Value Index is the median Zestimate valuation for a given geographic area on a given day and includes the value of all single-family residences, condominiums and cooperatives, regardless of whether they sold within a given period. The Home Value Index at the national level is calculated using a weighted average of the median home value for each county. It is expressed in dollars and is for a particular geographic region.

(4) Foreclosure re-sales captures mostly sales of bank-owned (REO) homes. It measures sales of homes that were foreclosed on in the previous 12 months.

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