Depending on Where You Live, a Home’s Value May Affect Net Gain or Loss

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RISMEDIA, April 1, 2008-While declining values and compressed equity have plagued many U.S. homeowners in recent years, the value of a home relative to others locally may very well influence how much equity a home lost or gained last year, according to new analysis by real estate website Zillow.com of its Q4 Home Value Report. Zillow has broken down the U.S. housing market and 125 Metropolitan Statistical Areas (MSAs) into five value bands – Bottom, Lower Middle, Middle, Upper Middle and Top – each representing 20% of the market, to illustrate how homes of varying value performed in 2007 and over the last five years.

Value Band Definitions and Change in Value

Higher valued homes saw largest drop in 2007 nationally but local picture can look quite different.

Nationally, higher valued homes, representing the top 20% of the market, have seen values decline more significantly than lower valued homes. Homes in the Top quintile declined 7.5% from 2006 while Bottom quintile homes depreciated least, down less than one percent (0.7%). Over the last five years, homes in the Bottom and Lower Middle quintiles returned the most significant rates of annualized growth at 10.1% and 8.4% respectively.

Digging a bit deeper, wide variances at the local level are apparent. For example, when reviewing year-over-year value changes across value bands for 2007, Zillow found within the top 25 largest metro areas:

- Higher valued homes outperformed lower valued homes in nearly half of the top MSAs
- Lower valued homes outperformed higher valued homes in approximately 20% of these markets
- There is little or no difference across quintiles in the remaining top 25 regions

Sample Top MSAs where Top Quintile Performed Better than Middle Quintile:

Sample Top MSAs where Bottom Quintile Performed Better than Middle Quintile:

“At the national level, the pattern we’re seeing may be due to the fact that many higher priced homes can be found in the metro regions hit hardest by steep value declines, which is supported when looking deeper at the local level,” said Dr. Stan Humphries, vice president of data & analytics at Zillow. “In some markets like San Francisco and New York, higher priced homes have actually performed better. This can be attributed to the fact that in many markets more expensive areas, closer to the city center, are holding value better than suburban areas further away where homes are often less expensive.

“One fairly constant finding — regardless of geography or major movements in value – is that owners of lower-valued homes tend to have significantly less equity than owners in higher-valued homes, driven primarily by levels of down payments,” added Humphries

Owners of Lower- to Mid-Range Homes Typically Own Less Home

As previously reported, homeowners who purchased in 2007 placed a median down payment of 10% and own 9% of their investment while 30.4% have negative equity. By comparison, owners in the Bottom quintile have median owner equity of 3% after placing a median down payment of 3.2% leaving 43% with negative equity. Owners in the Top quintile have median owner equity of more than 20% after placing 20% down and 16.9% have negative equity.

Owner Equity and Negative Owner equity for Homeowners who Purchased in 2007

1 The Zindex® is the median home value for a given area. Exactly half the home values are above the Zindex and half are below
2 Each value band for the U.S. and major markets represents 20% of the number of homes within each given market

For more information, visit www.zillow.com/Quarterlies/quarterlyreports.htm.

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Monday, March 22, 2010