It is being reported that roughly 46% of Twin Cities single-family homeowners are underwater, which is an increase from 42% last year. This is being reported from Zillow.
But what do they know anyway? Take a look at these two listings from Z. The data, according to the big-Z was updated in Feb of 2011. The first listing, 3325 Pillsbury, they give their estimate of value at $145,500. I had it listed for sale at $69,900. This home took almost 6 months to sell, and it sold at $51,000, in March 2011. Wow. Their estimate was off by some +$90,000. Since it took almost 6 months to sell, I don't think it was worth anywhere near their estimate of $145,500. In fact, even if the home were in top condition, freshly rehabbed, I still don't think it would clear $145,500.
Now take a look at this second listing. Z shows the value to be $182,500. But it's on the market at $364,900. This home didn't sell, but the tax value on it is $322,000. Even that is off of Z's mark by some -$120,000! Obviously buyers weren't willing to offer the $365k for this home, but I don't think our broker would have taken the listing if it were off on list price by 100%.
Now, I suppose if you average the two listings together, then Z's estimate of value is close to accurate. This would be a deviation of $15,000 on an average of the two's prices of $254,500. That would mean their estimates fall within 5.8% of average! What a funny way to look at it.
So what does this the 46% underwater mean, especially coming from the big-Z in the sky?
Big bold headlines like that can capture people's attention, but should it? Perhaps the reason that the median sales price has declined is because there is still an excess inventory of short sales and foreclosures that are selling in the lower price brackets. I took a look at the numbers in the MLS system and came up with 276 traditional sales out of 440 overall (in the areas I searched). That means 62% of homes currently pending are not short sales or foreclosures, which of course means that 38% are. The average sales price for the houses in these areas by type of seller are as follows:
Foreclosure - $91,000
Short Sale - $121,000
Average - $188,000
Traditional seller - $242,000
If you take the Average and the Traditional Seller prices, the Average is 22% lower than traditional sellers prices. Keep in mind that my survey of data only covered a few areas (MLS areas 300-310, 378-380, which is basically all of Minneapolis, Richfield, and Bloomington).