May 24, 2012
Why you should ignore the Zillow report on underwater homeowners
24 May 2012
Posted by Andrew Kantor
Of the two dozen or so news things I read daily, at least three had a headline to the effect of “Zillow sez a third of mortgaged homes underwater.” Waily, waily, waily. (Here’s Housing Wire’s. Here’s ABC’s. Here’s CNN’s. Here’s Business Week’s.)
The two reasons why you should just shake your head and ignore it:
1. Being underwater isn’t the same as “nearing foreclosure” or even “behind in payments.” If you bought a house (especially a first one) in the past few years, there’s a good chance you’re underwater. Most of your payments go to interest, and if values drop then on paper you owe more than the home is worth. So what? If you don’t need to sell, it doesn’t matter.
I bought my home in December. Technically I’m now underwater, at least by a little. So? That doesn’t change my payments, nor my ability to pay, nor the value of the house to me.
A more useful figure would be “Percent of homeowners who are A) underwater, B) have trouble making payments, and C) feel they will need to move in the next 24 months.
Heck, even “Percent of homeowners who are underwater by more than 10 percent of their homes’ value” would give a better picture.
2. That number is based on Zillow’s “Zestimate” of the home’s value. Its connection to reality is tenuous at best.
Ah, you say, but even a stopped clock is right twice a day (unless it’s digital). But CoreLogic also looked at homeowners and mortgages. And while Zillow says that 31.4 percent are underwater, CoreLogic found that the number was closer to 23 percent. And reason #1 still applies.
Zillow could certainly be right, and a large number of those underwater owners may suddenly have the need to sell, resulting in short sales and foreclosures and the End Times. But chances are the number is only useful to make headlines.