Florida home values and 'negative equity'

CoreLogic, a leading provider of information, analytics and business services, recently released negative equity data showing that 10.9 million, or 22.7 percent, of all residential properties with a mortgage were in negative equity at the end of the first quarter of 2011, down slightly from 11.1 million, or 23.1 percent, in the fourth quarter. An additional 2.4 million borrowers had less than five percent equity, referred to as near-negative equity, in the first quarter. Together, negative equity and near-negative equity mortgages accounted for 27.7 percent of all residential properties with a mortgage nationwide. In the fourth quarter, these two categories stood at 27.9 percent.

Negative equity, often referred to as "underwater" or "upside down," means that borrowers owe more on their mortgages than their homes are worth.


In Florida, 50.2% of all homes with a mortgage are in a negative-equity position (upside-down)...or within a few months of being upside-down.


And the following stat is even scarier: Out of 4.4 million mortgaged homes in Florida, the AVERAGE loan-to-value is 89%! That means the AVERAGE is less than a year away from being in a negative equity situation...


Something else to think about; A very large number of purchasers in our area have used or are utilizing FHA loans for the purchase a home. I have blogged and talked about this for the past year and a half...these loans require only a 3.5% down payment...it's kind of like buying a new car; as soon as you drive it off of the lot you can't sell it for what you just paid for it.


All of those FHA buyers from as recently as 6 months ago are now upside-down, and I venture to guess that they are not yet counted in the above 'negative-equity' figures.


Looking forward, there are about 2.2 million homes in Florida currently with $0 equity...if/when these homeowners hit some kind of economic snag or get into the situation where their homes need a major repair like a $20,000 roof...what do you think is going to happen? My experience has been that owners in that position tend to follow the saying "Don't throw good money after bad".


So, what does this mean to you as a homeowner, buyer or seller?


As a homeowner, it means that out of the homes that you can see from your front door, over half of them have a mortgage that is larger than the value of the home, and this factor has been an accurate predictor of future default. Default leads to foreclosures or short sales...which lead to reduced values: where does this cycle end?


If you are currently on the market as a seller, you want to have a serious discussion with your agent about how to be the NEXT home to sell. In a declining market, the longer you wait, the less your home is worth.


If you are thinking about selling, now will be better than later.


If you are in the market as a buyer...be certain that the agent that you are working with is able to analyze your situation accurately and advise you on the best course of action...IF you should be buying or renting, where, what type of loan, what type of property, what terms, what to offer, what contingencies to include...and much more. In this market, you don't want to get stuck working with a salesman/door opener...it could cost you dearly.


If you'd like to talk about the best course of action for your situation, give me a call on my direct line at 561-602-1258.


Thanks for reading,


Steve Jackson