According to the news article by the Seattle Times, houses with mortgages in the Seattle metro area now owe more than their homes are worth, from an estimate by Zillow.com.
At the end of 2010, over 34 percent of all single-family homeowners in King, Snohomish, and Pierce counties were underwater on their homes. This is higher than the national figure of 27 percent.
Also shocking is that the region’s rate of increase over the past year is greater than the national increase. Part of the reason this is happening is because homes in the Seattle metro areas were still increasing while homes in other parts of the country were falling. The Pacific Northwest was about a year late in terms of the housing bubble. So what we’re seeing now is homes in the area at levels that Los Angeles was at a year ago.
Negative equity can have a large impact on the housing market, and also the rest of the economy. This is especially poignant where the gap between the home’s value and loan balance is large. There’s a likelihood that owners will default – even if they can still manage the payments.
This is referred to as a “strategic default” where a owner chooses to default on a mortgage. One of the negative effects of strategic defaulting are that it also damages the owners’ ability to obtain credit for other purchases, further reducing economic activity. This also means that they probably wouldn’t be able to buy another house anytime soon which also hinders a housing market recovery.
Using public records, Zillow estimated that over 28 percent of all houses and condos sold in the Seattle metropolitan area in December sold for a loss. That’s up from 20 percent in December of 2009. Snohomish County was hit the hardest where sellers of almost 42 percent of homes in that county in December received less than what they had paid.
The number of sales at a loss will continue to increase as home prices continue to drop. By Zillow’s calculation, homes in King, Snohomish, and Pierce counties are now worth what they were in 2004.
For the original article, please see the Seattle Times website.