U.S. Home Slump Puts Owners Under Water, Zillow Says

U.S. home values dropped 7.7 percent in the first quarter to the lowest in almost three years, according to estimates by Zillow.com, an online data provider.

The decline is the biggest in 12 years of data compiled by Seattle-based Zillow.com, a Web site started in 2006 to provide homeowners, real estate agents and potential buyers with value assessments called “zestimates” for single-family homes, co- operative apartments and condominiums.

U.S. house prices dropped for the first time since the 1930s last year, discouraging buyers who fear being “underwater” on their mortgage, or owing more on their home than it’s worth. That’s already happened to almost 52 percent of homeowners who bought in 2006 when prices peaked, Zillow estimates. At the same time, record foreclosures are adding to a glut of unsold homes and driving prices down further.

“It’s clear evidence that the fundamentals of those housing prices were not sustainable,” Zillow Vice President of Data and Analytics Stan Humphries said in an interview. “That’s definitely aggravated nationwide by the liquidity crisis.”

Financial institutions have reported at least $318 billion in mortgage-related losses and asset writedowns since the beginning of last year.

The proportion of banks tightening lending standards for even prime borrowers rose last quarter to about 60 percent from 53 percent, according to the Federal Reserve’s Senior Loan Officers’ Survey.

The survey, published yesterday, also indicated the share of banks making it tougher for companies and consumers to borrow approached a record after the subprime-mortgage collapse made them more reluctant to lend.

“The inability to secure refinancing is ultimately contributing to the growing rates of foreclosure in many parts of the country,”  Zillow’s Humphries said.

About 30 percent of existing U.S. homes sold through 2009 will be foreclosures, according to an April 24 report by Lehman Brothers Holdings Inc. economists Michelle Meyer and Ethan Harris.

New foreclosures rose to an all-time high at the end of 2007 as borrowers with adjustable-rate loans walked away from properties before their payments increased, according to the Mortgage Bankers Association. The median price of an existing home dropped 7.7 percent from a year earlier in March, the National Association of Realtors said on April 22.

Low down payments as a proportion of the cost were a contributor, Zillow said. In Las Vegas, the median down payment in 2006 was 2 percent and values there have fallen 25 percent, leaving 90 percent of those borrowers owing more than the value of their homes.

Countrywide Financial Corp. has frozen home equity credit lines for almost all its Las Vegas customers, joining Bank of America Corp., Washington Mutual Inc. and IndyMac Bancorp Inc. Together the four lenders have frozen about 600,000 equity credit lines nationwide since January, said Michael Kratzer, president of a Bankrate Inc.-owned Web site.

Home equity lines are a form of revolving debt backed by the borrower’s stake in a house they own. Lenders are curtailing access to such credit in cities where property values are falling.

Today’s Zillow report showed 130 out of 160 metropolitan areas surveyed now have median home prices below last year’s. Of the 10 metropolitan areas with biggest drops, five were in California: the Riverside-San Bernardino, Sacramento, San Diego, Los Angeles and San Francisco areas. Prices in those regions declined from 13 percent to 26 percent.

“It’s very difficult to call a market bottom,” Zillow Chief Financial Officer Spencer Rascoff said today in an interview with Bloomberg Television. “I can tell you we are not at it yet. Nationwide we continue to see increasing rates of declines.”

Over the last five years, the nation as a whole showed a positive return on homes. About 144 areas, or 90 percent of those Zillow surveyed, have median prices above 2003 levels.