Zillow: Fewer Underwater Borrowers in South Florida

A new report by a national real estate firm suggests that parts of South Florida’s beleaguered housing market are showing modest improvements.

At the end of the second quarter, 44% of the 838,350 single-family homeowners with mortgages owed more than the properties were worth. That’s down from 47$ a year earlier, Zillow.com said Monday.

Meanwhile, 42% of single-family homes sold for a loss in June, down slightly from June 2009. Roughly 46% of condominiums sold for a loss, essentially unchanged from a year ago, according to the report for Palm Beach, Broward and Miami-Dade counties.

While the declines are encouraging, the percentages still remain elevated, an indication that the region’s housing recovery will be slow, analysts say.

“This is a market plagued by high numbers of distressed sales and high unemployment,” said Greg McBride, senior financial analyst with Bankrate.com, a North Palm Beach consumer website. “Those factors will be with us for a while.”

Many borrowers who owe more than their homes are worth put little or no money down and paid near-record prices in 2004, 2005 and 2006. Some refinanced their homes during that period.

“Underwater” mortgages drag down the housing market and the economy as a whole. It also affects people’s psyche, said Mark Vitner, a senior economist for Wells Fargo.

“You restrain your spending and restrain your risk-taking,” Vitner said. “One of the reasons people started businesses in their garage was because they had equity in their house.”

Underwater homeowners face limited options. They can’t refinance to lower their mortgage payments. Some will take hits to their credit scores by negotiating short sales – selling for less than the mortgage amount -- or letting the homes fall into foreclosure.

The vast majority will remain in the homes and keep paying their mortgages as long as they stay employed. Because prices have tumbled by nearly 50% since the peak of the housing boom, it could be 10 or 20 years before some borrowers break even in a sale.

“That’s certainly a daunting thought,” said Tim Becker, director of the Bergstrom Center for Real Estate Studies at the University of Florida.

Nationally, about 22 percent of single-family homes with mortgages were underwater at the end of the second quarter. South Florida ranks 17th in the country with 44%. Las Vegas is first at 74%, and Orlando is third at 65%.

In most cases, when homes are resold after a foreclosure, the properties no longer are underwater because the new owners have bought at drastically reduced prices. But those gains are being offset in South Florida by falling prices that pull additional mortgage holders underwater, Zillow says.

The Seattle-based real estate company compiles data from local property records. Its report for underwater mortgages did not include condos.

Stan Humphries, the firm’s chief economist, expects housing prices nationally to hit bottom in the third quarter of this year. But he said South Florida’s bottom likely will come later because the housing market here has been exceptionally soft for nearly five years.

While fewer homes sold for a loss, more than three-quarters of homes and condos in Palm Beach, Broward and Miami-Dade counties lost value over the past year, Humphries said. The rate of decline has increased in the region while values in most metro areas have risen or had slower declines.

“That gives you some sense of how much economic stress is being placed on households,” Humphries said. “A lot of Americans’ wealth is tied up in their houses.”