Many local homeowners underwater

Nearly one-third of mortgage-paying property owners in metro area owe more on their home than it is worth, real estate report says

By Cami Joner, Columbian retail & real estate reporter

Published:

 

Property values decline

Negative equity describes the portion of mortgage-holding homeowners who owe more than their properties are worth.

Portland-Vancouver: 32.0%

Seattle: 34.3%

Los Angeles: 20.2%

Phoenix: 69.9%

Pittsburgh: 9.3%

United States: 27.0%

Source: Zillow.com, Seattle

Nearly one in three mortgage-paying homeowners in the Portland-Vancouver area owed more on their homes than the properties were worth in the last three months of 2010, according to a report this week from Seattle-based Zillow.com.

And one in every 429 Clark County homes received a foreclosure filing in January, RealtyTrac said Wednesday.

Local experts say the figures point to a housing market that is slowly beginning to stabilize as each distressed property works its way through the cycle. While little can be done to save some homeowners who are on the brink of foreclosure, it might not be too late for other borrowers to regain some lost equity, especially those who plan to own their homes for five years or longer, said Dick Riley, a Vancouver appraiser and owner of Riley & Marks Inc.

“You’re paying a couple hundred dollars a month down on the principal and the value starts to increase until maybe you get back into an equity position,” he said.

That could take a while, cautioned John Bruce of Summit Funding Inc., which operates in Vancouver and Lake Oswego, Ore.

“I’m loath to say the sky is falling,” Bruce said. “If your plan is to stay in the house for five or 10 years, it might not be a problem.”

Clark County’s 381 January foreclosure total was 28 percent higher than December’s 297 foreclosures and 19.8 percent higher than the same month last year, RealtyTrac reported. The county had the fourth-highest foreclosure rate out of Washington’s 39 counties in January, dropping from its rank of No. 3 in December.

Snohomish County ranked No. 1, followed by Pierce and Mason counties.

Some experts said foreclosures, which can take up to four months to process, would continue to play a role in the local housing market’s cycle.

“I describe it as a rabbit moving through a python. It’s got to work its way through,” said Mike Lamb, a broker with Windermere Real Estate/Stellar Group in Vancouver.

In the meantime, Clark County home values continued to fall in 2010, driven by rock-bottom prices on bank-owned properties and short sales, in which the homeowner negotiates with the lender to sell the home for less than is owed.

County home values were down by 8 percent in one year, going from a median price (half sold for more, half for less) of $215,000 in December 2009 to a median of $197,850 in December 2010, according to “benchmarks,” a Vancouver real estate data service.

That could continue to drive higher the number of home mortgages that are “underwater,” which means borrowers owe more than the home would sell for. Some homeowners who purchased a house in 2009 are already in a negative position, Bruce said.

“If they put down the 3.5 percent required for an FHA loan (down payment), they now would be underwater,” he said.

According to Zillow.com, mortgage-paying homeowners in the local metro area are slightly more likely to be underwater on their mortgages than homeowners nationwide — 32 percent here compared to the national rate of 27 percent. But compared with the previous year, 12 percent fewer Portland-Vancouver homeowners were in a negative equity position in the fourth quarter. Zillow.com reported a 5.2 percent decline from the third quarter.

Seattle-based Zillow.com did not respond to phone and e-mail messages for this story.

At least one Vancouver real estate broker questioned Zillow.com’s data, saying the company bases its estimates on outdated information from county assessors’ reports, which are often several years behind market sales data.

“It’s an interesting number, but I certainly wouldn’t bet on it,” Lamb said of Zillow.com’s report that more than one-fourth of county homeowners owed more than their homes were worth in the fourth quarter of 2010.

Lamb does not expect Clark County’s housing market to fully recover until job prospects improve for the area’s residents.

For months, Clark County’s jobless rate has hovered in the 12 percent to 14 percent range, coming in at 13.1 percent in December, when private-sector industries cut jobs and holiday hiring was lower than what is normally expected, according to the Employment Security Department.

“Part of what’s fueling this is job losses and reduced compensation,” Lamb said. “When market values decline, you trap people in houses that are worth less than is owed and they can’t sell out of the property.”

Washington had the 12th highest foreclosure rating in the nation, with one in every 565 homes in foreclosure in January. Oregon ranked No. 15, with one in every 586 households in some stage of foreclosure.

RealtyTrac counted a total of 75,198 U.S. properties in foreclosure in January, a 1 percent decrease from the previous month and a 27 percent decrease from January 2010.