Increasing unemployment
In most cases, the cities where homes have lost the most value during the past year also possess the highest unemployment rates.Homes in Merced, Calif., have lost 40.2% of their value year-over-year, the biggest loss of home values in the nation, according to Zillow.com. The city's unemployment rate is the fourth-worst among 372 metropolitan areas at 17.6%, according to July data from the Labor Department. El Centro, Calif., where home values plunged 37.6% year-over-year (the second-biggest drop in the country), has the worst unemployment rate at 30.2%.
Individuals living in areas battered by high unemployment are likely to see their home values drop further, especially if they live in areas dependent on dwindling industries -- like Central Valley, Calif., and the mortgage lending business or Detroit and the auto industry, Zandi says.
You can find the latest unemployment statistics for most metro areas here.
Homes in disrepair
Dented siding, peeling paint and broken porches could be signs that neighbors are having trouble making ends meet and can no longer pay to take care of their homes, Zandi says. Or they may have gotten an appraisal and discovered their homes have dropped in value and are no longer worth the cost of repairs. As the condition of homes in your neighborhood worsens, home values almost inevitably drop."The mere fact that they're not investing in their homes will affect you too," Zandi says.
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What underwater borrowers have in common
Risky mortgages: Some 77% of option-ARM borrowers and 50% of subprime mortgage borrowers were estimated to be underwater as of the first quarter of 2009, according to the Deutsche Bank report. With option-ARMs, borrowers could make minimum monthly payments that didn't even cover the loan's interest. As the market declined, these balances grew. With subprime mortgages, borrowers often had poor credit scores and little documentation of their financial situation. In both cases, borrowers often ended up with a large mortgage relative to the house's price.
Video: Homes for $1 in St. Paul
Date of purchase: Individuals who bought their homes between 2003 and 2008 are at risk of being underwater because they bought while prices were rising, Zandi says. The risk is greatest for those who bought in 2005 and 2006, as the market approached its peak.
Excessive borrowing: Many individuals borrowed against their homes during the bubble by taking out second mortgages or tapping into home equity lines of credit or home equity loans. This borrowing left their homes with less equity to weather the drop in home values.
Home's location: The areas that have been hit the hardest by plunging home values include the "sand states" of Arizona, California, Florida and Nevada because they brought the most speculation, easy credit and overbuilding during the bubble, Zandi says. Also hurt: the states where unemployment is especially high and manufacturing jobs have been eliminated like Michigan, Ohio and Indiana, Zandi says.
This article was reported by AnnaMaria Andriotis for SmartMoney.
Published Sept. 9, 2009
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