High-value homes tend to decline in value at a steeper rate than lesser-value homes in a declining market, according to an analysis by real estate valuation and marketing company Zillow.
The analysis is based on a review of the company’s estimates of home values over time — the company refers to these estimates as Zestimates. The company broke homes into five categories of home values, each representing 20 percent of the market, to analyze differences in the performance of each market segment.
During fourth-quarter 2007, Zillow estimated that home values dropped 3 percent nationally compared to the same quarter last year. In the bottom 20 percent of the value spectrum, which represents properties priced below $140,999, Zillow found that prices fell 0.7 percent in fourth-quarter 2007 compared to fourth-quarter 2006. That contrasts with a 7.5 percent year-over-year decline in the fourth quarter for properties in the top value category, which represents properties priced above $460,500.
The company’s analysis also found that properties in the lowest-value rung experienced the highest annualized increase in value among all of the value categories over the past five years, rising 10.1 percent. That compares with a 5.4 percent annualized change in value over the past five years for properties in the top tier.
Within the 25 largest metro areas, higher-value homes outperformed lower-valued homes in about half of the areas, Zillow reported, while lower-valued homes outperformed higher-valued homes in about 20 percent of the markets, and there were minor or no differences in the different value categories for the remaining top-25 metro areas.
Among homeowners who purchased in 2007, an estimated 30.4 percent now have negative equity in their homes and current owner equity is estimated at 9 percent overall. Those homeowners made a median down payment of 10 percent, according to Zillow data. Those who bought low-value homes in 2007 are more likely to have negative equity than those who bought high-value homes, according to the Zillow analysis.
For the bottom 20 percent of the value spectrum who bought in 2007, an estimated 42.8 percent now have negative equity, compared with 16.9 percent of homeowners who bought in the top 20 percent of the value spectrum in 2007.
Those who bought in the highest-value category in 2007 put a median 20 percent down payment on their home, and current owner equity for that group is estimated at 20.2 percent. That compares with a median down payment of 3.2 percent among those who bought in the lowest-value segment of the market — and current owner equity is estimated at 3 percent for this group.
"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 Stan Humphries, vice president of data and analytics at Zillow, in a statement.
"In some markets like San Francisco and New York, higher-priced homes have actually performed better," he also stated, which could be attributed to the fact that pricey homes that are closer to city centers are holding value better than more remote suburban areas where homes tend to have a lower value.
"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," Humphries stated.
More recent price reports, which are based on repeat sales of the same homes over time, indicate that U.S. home prices continue to drop compared to last year. The U.S. Office of Federal Housing Enterprise Oversight reported earlier this month that U.S. home prices fell 3 percent in January compared to January 2006, while a 20-metro-area index by Standard & Poor’s/Case-Shiller dropped 10.7 percent year-over-year in January.
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