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Negative equity declines

I posted two articles on, both discussing the same report from CoreLogic:

New CoreLogic Data Shows Third Consecutive Quarterly Decline in Negative Equity

The good news is that fewer homes (with mortgages) nationwide are worth less than their owners owe for them.  The bad news is:  not by much — down to 22.5% from 23% in the 2nd quarter.  That’s 200,000 mortgagors out of 11 million.  Of course, any improvement is good.  My questions are:

  • Is this calculation even statistically significant given the uncertainties in estimating specific values of this many properties?
  • If it is real, how sustainable is it?

The same study cites declining home prices as an immediate threat to this small gain.

That statistic in itself is suspect in my opinion.  I have no doubt that CoreLogic has more resources and access to more data than I do so they deserve the benefit of this doubt, but  charting average and median home prices can be very misleading.  In one recent blogpost (Case-Shiller caution — national index, local business) I pointed out that at least one very important and rightly respected national index can lead to completely erroneous conclusions about Austin-area home values.  In another (Home sales down?  Yes … and no?) I focused on data within the Austin/Central Texas market and showed that what appears to be a meaningful general increase in home values is really a shift in the distribution of home sales toward higher price ranges.

I do not know that CoreLogic’s study includes that kind of distortion — perhaps they reviewed very detailed pricing data from local markets all over the U.S.  One chart in their report indicates a decline in pre-foreclosure sales of higher priced homes and an increase in sales of lower priced properties.  When combined, that data could easily show a decline in “average” home prices.  It would not, however, indicate a decline in the value of a specific home or even a specific price range within a local market.

Not surprisingly, the CoreLogic report also shows that the worst of the housing crisis remains in the same five states that I have written about many times:  Nevada, Arizona, Florida, Michigan, and California.  11.2% of mortgages in Texas are underwater, compared to 66.5% in Nevada and 31.6% in California.  Other states are even lower than Texas, but most are worse.  I remain generally unconcerned about a flood of low-priced foreclosures in our local market unless it is caused by an artificial build-up (like a government-imposed moratorium), but even in areas where there are large numbers of upside down properties the market will heal faster if that phantom inventory is absorbed as quickly as the process will allow rather than dragging it out for years.

My conclusion:  The CoreLogic report does not herald a significant trend toward recovery (and it does not claim to), but there are other signs in the economy that we will see strength building during 2011.  I certainly believe that is true in the Austin area, where are are still creating new jobs and attracting new in-migration and company relocations.  Over the next couple of months we will see more “official” economic forecasts for the Austin economy, but my expectation at this point is a modest increase in sale volume, a general (but small) increase in home prices, and rising mortgage interest rates (again modest, but enough to affect borrowers’ buying power).

About Bill Morris, Realtor

More than thirty years of business experience (high tech, client service, business organization and start-up, including many years in real estate) tell me that service is the key to success and I look forward to serving you. I represent both buyers and sellers throughout the Austin metropolitan area, which means first-hand market knowledge is brought to bear on serving your needs: -- Seller Representation is a comprehensive process that begins with thorough market analysis and consultation, continues with properly staging the home to achieve the highest price possible in a reasonable time on market, a complete program of marketing and promotion, ongoing updates and communication, closing coordination, and follow-up throughout (and after) the sale. -- Buyer Representation is also full service: shopping, previewing, price and market consultation, contracting, negotiating, coordination of inspections, appraisals, repairs, and closing details, and follow-up beyond the closing of your purchase to ensure your lasting satisfaction. Because the real estate industry is becoming more sophisticated and challenging every day, you need a professional that understands the industry and is positioned to stay ahead of the game. I go the extra mile to help you achieve your goals. That's why I constantly research the market and property values so your home is priced effectively from day one. I also make sure the public knows your home is for sale by using innovative advertising and marketing techniques to attract potential buyers.


3 thoughts on “Negative equity declines

  1. Don’t you think this decline in negative equity, despite falling home prices, is do to the fact that banks are foreclosing on the properties with the most negative equity? That would me than the negative equity is falling into the “shadow inventory” that banks hold.

    Posted by Mr. Bubble | December 14, 2010, 5:49 AM

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