Sagging home prices have left 17 percent of homeowners in the Hartford region under water, meaning they owe more on their mortgages than their homes are worth, according to statistics recently released by Zillow.com, an online real estate tracker.
Nationwide, about 1 in 5 home borrowers are under water, leaving Hartford in slightly better shape than the national average. According to Zillow.com, the average value for homes in Hartford, West Hartford and East Hartford is $211,527, down about 11 percent from the year-ago period, and at their lowest point since the second quarter of 2004.
Homeowners who purchased their property in the last five years are facing the toughest challenge, as 27 percent of those borrowers now have negative equity.
“That’s a function of the market,” said Katie Curnutte, a spokesperson for Zillow.com. “If you bought your home at the peak of the housing bubble, that’s going to make you much more likely to be under water.”
Zillow has just begun tracking the number of underwater borrowers, so comparisons to previous years are unavailable.
Despite the percentage of underwater borrowers in Hartford, Curnutte said it’s a “relatively low” number compared to other regions of the country.
Curnutte said borrowers in Hartford have historically made “pretty high” down payments on their homes, which helps reduce their chances of experiencing negative equity.
For example, from 2004 to 2007, the median down payment by a Hartford homebuyer was 20 percent. A 20 percent down payment has long been considered typical, but during the crux of the housing bubble, many real estate deals were wielded with buyers putting down much less on their home, and paying higher or adjustable rates on their loan to make up for it.
That’s one factor that helped spur the wave of foreclosures across the U.S. over the past few years.
In 2005, the median down payment for first-time home buyers in the U.S. was 2 percent, with 43 percent of those buyers making no down payment, according to a study by the National Association of Realtors.
Deb Bochain, executive vice president of retail banking at Middletown-based Liberty Bank, said she is not surprised by the statistics but also recognizes that there are pockets across the nation that have been hit much harder than Hartford.
“Overall, to be near or below 20 percent is to be expected,” Bochain said. “We’ve been seeing an overall decline in home values, so it’s not that surprising.”
Nationwide, the number of borrowers who are under water climbed to 20.4 million at the end of the first quarter from 16.3 million at the end of the fourth quarter. That represents nearly 22 percent of all homeowners, according to Zillow.com.
Las Vegas has been the hardest hit city with 67 percent of borrowers under water, while over 50 percent of homeowners in Modesto Calif., and Stockton Calif., have negative equity.
Cities on the West Coast, particularly in California, Nevada and Arizona, have been hit hardest by the housing boom and bust.
Florida has also been negativity impacted.
In New Haven, about 19 percent of borrowers are under water, according to Zillow.com.
Having a home under water can create challenges for borrowers looking to refinance or qualify for housing programs recently adopted by the Obama administration. It also encourages homeowners who are falling behind on mortgage payments to walk away from their homes.
“If you’re staying in your home for awhile, having it under water won’t impact you that much. It’s like an unrealized loss in the stock market,” Curnutte said. “But if you get in a pinch and need to sell or refinance your home or take advantage of today’s low mortgage rates, it could be a problem.”
Under one component of Obama’s housing plan, as many as five million homeowners whose loans are owned or guaranteed by Fannie Mae and Freddie Mac can refinance their mortgages, but only if the homeowner does not owe more than 105 percent of their homes value.
That means borrowers who are severely underwater wouldn’t qualify for the program.
“If the value of mortgage exceeds 5 percent, there is little if anything that could be done to get a lower interest rate,” Bochain said.
Bochain added that when borrowers are in a neighborhood where people have walked away from their home, it creates more of an incentive for underwater borrowers to do the same.
Bochain said she expects to see some stabilization in home prices by the end of the year, mainly spurred by the current low interest rate environment.
“We’ll get through it,” she said.
Sinking Home Values Home Value Year-Over-Year Homes with Region Name Index Change (Pct) Negative Equity Las Vegas-Paradise, NV $158,839 -30.3% 67.2% Stockton, CA $175,484 -32.4% 51.1% United States $182,378 -14.2% 21.9% Providence-New Bedford-Fall River, RI-MA $214,222 -19.4% 21.2% New Haven-Milford, CT $216,130 -12.2% 18.8% Hartford-West Hartford-East Hartford, CT $211,527 -10.5% 17.6% Springfield, MA $184,096 -9.0% 15.5% Atlantic City, NJ $201,911 -14.0% 14.3% Norwich-New London, CT $218,435 -12.2% 14.2% Source: Zillow.com
