Real Estate Outlook Jan 2010

8/14/2019 Real Estate Outlook Jan 2010

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Real Estate Market OverviewJanuary 2010

Stan Humphries, PhD

Chief Economist

[email protected]

206.470.7127





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• Case-Shiller usually reports

on the Composite-20 Indexwhich is dominated bybubble markets.

• Case-Shiller only looks atsingle-family homes(excludes condos/coops).

• Case-Shiller only includes

homes that have sold atleast twice (and excludes allnew construction)

• Case-Shiller includesforeclosure re-sales eventhough these aresubstantially different thannon-distressed sales.

• ZHVI looks at all homevalues, regardless of whathas sold or not.

• ZHVI does not includeforeclosure re-sales.

Differences Between Zillow Home Value Index (ZHVI) and Case-Shiller



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Home Values in the United States



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Foreclosures in the United States



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Local Markets: The Good, The Bad and The Ugly



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Local Real Estate Performance: The Good



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What Do the Good Look Like? Los Angeles Home Values



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What Do the Good Look Like? Los Angeles Foreclosures



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Local Real Estate Performance: The Bad



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What Do the Bad Look Like? Tampa Home Values



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What Do the Bad Look Like? Seattle Foreclosures



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Local Real Estate Performance: The Ugly



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What Do the Ugly Look Like? Las Vegas Home Values



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What Do the Ugly Look Like? Las Vegas Foreclosures



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Continuing Challenges for Housing Market



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Negative Equity + Unemployment = More Foreclosures

Metro marketswith the highest

rates of negativeequity



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Negative Equity Among the Largest Metro Markets



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Lots of Vacant Inventory



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• Up 40 BPSsince earlyDecember

• Likely toincreasefurther as Fedcontinues toramp down

purchase of MBS

Mortgage Rates Rising Again

Source: Zillow.com; see real-time rates and historical charts athttp://www.zillow.com/Mortgage_Rates/



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Mortgages Continue to Reset and Recast

Source: Deutsche Bank Global Markets Research



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Internal Dynamics of the Current Real Estate Market



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• In most metro areas,the value of the lowerthird of homes hasfallen farther than thevalue of the uppertwo-thirds.

• This holds true inmetro areas like SanFrancisco, New York,Los Angeles, Chicago,Philadelphia, Atlanta,

Detroit, Boston, etc.

Low-End Homes Falling Faster than High-End Homes



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• The trend of

differencesbetween pricetiers plays outgeographically,as well.

• San Franciscometro cities andtowns with ahigher ZillowHome ValueIndex show lessof a decline.

Low-End Homes Falling Faster than High-End Homes, Cont’d



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• In some metroregions, however, thethree price tiers arebehaving similarly.

• This is true in theSeattle, Miami,Portland, Ore. andOrlando metros.




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• In the Seattle

metro area,trends indepreciationseemindependent of home values.




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Foreclosures Move Up-Market

• Homes in the top one-third of home values

now make up twice theproportion of foreclosures they didthree years ago.

• In 2006, the top one-third made up 16% of foreclosures.

• In July 2009, they madeup 30%.

• High delinquency ratesin Prime, Alt-A andOption Adjustable Ratemortgages result inforeclosures outside of subprime.

• Cure rates are low, andwith 21% of all single-family homes withmortgages underwater,they will likely stay low.



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Foreclosures are a Distinct Market from Non-Foreclosures

• Foreclosures sell for

substantially lessthan non-foreclosures, evenafter controlling forlocation and physicalspecifications.

• In Seattle, foreclosedhomes currently sellfor 81% of non-foreclosure saleprice.

• Across all metros,foreclosures sell forabout 72% of non-foreclosure saleprice.

http://www.zillow.com/blog/files/2009/11/discount9.png






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• More foreclosures in

an area do lead to asmaller gap betweenforeclosure and non-foreclosure prices.

• But this discount israrely less than 20%.

• Methodology:Comparing actualsales of foreclosuresand non-foreclosuresto Zillow valuation

(Zestimate)

Foreclosures are a Distinct Market from Non-Foreclosures, Cont’d

http://www.zillow.com/blog/files/2009/11/image006.png



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• Home values will continue to fall until Q2 2010

• Likely another 5% decrease in the ZHVI for a total peak-to-trough decline of 25%.

• Further declines driven by foreclosures (themselves drivenby negative equity and unemployment as well as by moremortgage resets/recasts), increasing mortgage rates, analready high supply of for-sale homes, and weaker demandafter the homebuyer tax credits lapse due to demand-

shifting.

• Very anemic appreciation after bottom is reached; may notappreciate at all in real terms for next 3-5 years.

Conclusions

Documents

Real Estate Outlook Jan 2010