Zillow has recently reported that is shows the percentage of U.S. homes with mortgage debt higher than the value of the home has actually decreased from the second quarter to the third quarter. What does this mean for you and I and all the other real estate investors out there who are jumping into the Memphis investment property pool?
Don't break out your party hats yet! That's what it means.
I don't trust the numbers put out by companies or institutions which have a vested interest in the housing market turning around. For those of us investing in Memphis real estate, we know from being on the ground that the situation is improving, but until retail sales actually beging to pick up steam in more parts of the city, homeowners with mortgages put in place in the last 9 years are more than likely still under water.
It's also hard to read an article like this and get a deduction about our particular market when they are obviously looking at details across many markets. Here are some of the numbers that Zillow produced:
21% of the records collected showed homes with mortgages greater than the value of the property. That is down from 23% in the second quarter. Anyone have a bottle of champaign!
7% of the markets analyzed showed declines in year to year value.
18% of the markets showed values increasing in year to year value.
But if you dig a little deeper you see what the real reason for the turn around is. "The decline in the percentage of homeowners with negative equity is a positive sign, and is directly attributable to the stabilization of home values from the second quarter to the third," Zillow Chief Economist Stan Humphries said in a statement. "It is also attributable to many homeowners who were previously underwater on their mortgage losing their homes to foreclosure."
And there it is. As more homes go into foreclosure there are fewer homes underwater. Eventually all of the Memphis properties that are underwater will be cleared up as more go into foreclosure and those properties are then fixed and re-sold at a true value. When that occurs, there will be more retail sales for comparable analysis which in turn will raise the value on the last of the homes sitting under water.
In my opinion, it will take years (3-5) best guess for the Memphis real estate market to turn around. This is actually a very positive step for investors looking to buy Memphis investment property. There will be several more years of depressed pricing and an ever increasing demand for quality housing to be provided.
When the housing crisis begins to abate, we should Memphis property values return to normal levels very quickly and investors who purchased today at 80% of current value, will suddenly find themselves with 40%-50% equity. As the economy turns around, not only will values go up, but so will rent rates as supply declines and demand remains. All of this leads to a bright future for any investor who is purchasing properties for invesmtent in Memphis today.