Zillow: 38% Drop In Chicago Area Underwater Homes

I swear it’s just a coincidence that this is my third blog post in a row based upon some Zillow press release. They’ve had some interesting press releases lately – this time regarding their third quarter Negative Equity Report, which looks at the percentage of homes that are underwater on their mortgage – i.e. the house is worth less than the mortgage due.
For the nation as a whole the percentage of underwater homes peaked around 2012 and since then the percentage has almost been cut in half – actually down by 45%. Zillow estimates that today around 16.9% of the nation’s homes that have a mortgage are underwater and that around 7 million Americans have been saved from the jaws of negative equity. Of course, Zillow is basing these estimates on their famously innacurate Zestimate of home values but I’m assuming that when they look at a large group of properties these errors are going to cancel out.
There is, however, a catch in all this as Zillow points out. When you factor in the costs of selling one home and buying another that 16.9% negative equity percentage actually becomes 35% – a huge difference. In other words a much larger percentage of people are essentially stuck in their homes than you might think based upon that 16.9% percentage simply because they can’t afford to move.
Zillow Chief Economist Dr. Stan Humphries shared this perspective on the implications of this information:

The market has made terrific strides since bottoming out in late 2011 and early 2012, with millions of underwater homeowners freed in just the past few years, and millions more set to surface in coming months and years. Looking at negative equity helps us understand so many of the currently out-of-whack dynamics in the housing market, including low inventory, rapid home value appreciation and weak sales volumes. None of these problems will be solved overnight, in large part because negative equity will likely be a part of the housing market for years, and easily into the next decade in some hard-hit areas. But we’re moving in the right direction, and time will heal all wounds.

Among other things I think Dr. Humphries is saying that inventory is low because so many people just can’t afford to move at the current prices.
For the Chicago metro area Zillow is estimating that 25.3% of the homeowners with mortgages in the area have underwater homes, which is down from 41.1% at the peak. According to Zillow that put’s Chicago only behind the Atlanta and Las Vegas areas (out of 35 metro areas) in terms of the percentage of underwater homes. Nevertheless, Chicago has shown a lot of improvement and this is consistent with the secular decline we are seeing in foreclosure activity.
However, the underwater homes in Chicago, much like in Detroit, are concentrated at the lower end of the price spectrum. Zillow divides up all the homes with mortgages into 3 equal sized tiers based upon price. 41.4% of Chicago’s bottom tier homes were underwater while only 23.9% of the middle tier homes were underwater and only 10.4% of the top tier homes.
Zillow goes a step further and forecasts that Chicago’s percentage of underwater homes will decline further by 2015 to 23.7% – essentially relying upon even more of their black box generated numbers to come up with this estimate. That’s OK. At least their forecast is credible.
#ChicagoRealEstate #mortgages #realestate
If you want to keep up to date on the Chicago real estate market, get an insider’s view of the seamy underbelly of the real estate industry, or you just think I’m the next Kurt Vonnegut you can Subscribe to Getting Real by Email. Please be sure to verify your email address when you receive the verification notice.

Leave a Reply