Photo: Robert Clark

Overall home values in most major markets have recovered in the decade since the housing market collapse, but many neighborhoods are still struggling to find solid ground, according to a new study by the listing site Zillow.

“We have long known that economic downturns leave scars. But these scars cut deeper and persist longer in the most exposed communities,” writes  Aaron Terrazas, a senior economist with Zillow, in a statement.

Whether a homeowner has regained the value lost during the crisis is largely driven by how many neighboring homes went through foreclosure following the bust.

In 2008, national home values fell almost 26 percent, and millions of Americans lost homes to foreclosure. Nearly 33 percent of homeowners who didn’t lose their homes due to foreclosure were underwater on their mortgages.

Homes in zip codes that suffered the highest foreclosure rates following the bust are returning to their pre-recession peak value at a much slower pace than homes in nearby neighborhoods that saw fewer foreclosures.

In the country’s largest 35 metro areas, over 54 percent of homes in areas with the fewest foreclosures during the bust have fully recovered, compared with about 39 percent of homes in areas with the most foreclosures.

And in 19 of the top 35 markets, areas that saw relatively few foreclosures during the housing bust have seen home value gains at least 10 percentage points greater than areas with a greater rate of foreclosures.

In 13 metros, the rate is at least double and in three — Riverside, CA, Las Vegas, NV, and Washington, DC — it is at least four times greater.

Five metros — including Chicago, IL, and Miami, FL — have seen the opposite play out, with high-foreclosure areas recovering at a slightly higher rate.

The gap between high-foreclosure and low-foreclosure areas is especially pronounced throughout California and much of the Midwest.

Taken as a whole, 21 of the top 35 largest metros have recovered their pre-recession high median home values, including four that are more than 50 percent higher.

Nationally, median home values are nearly 10 percent above what they were at the bubble’s peak and today less than 10 percent of homeowners are underwater on their mortgages.

And with the Great Recession far in our rearview mirror, many economists are starting to wonder how some still vulnerable markets will fare when the next recession hits — possibly as soon as the end of 2019. However, many of the conditions that prompted the last downturn — such as lax lending standards and excessive new construction — are notably absent in the housing market today.

“The risks facing the American housing market today are much different from the risks of a decade and a half ago. For those homeowners who are still underwater, if their home value drops it will take them longer to gain positive equity,” Terrazas tells Livabl.

And if those homeowners aren’t planning to sell, they can hopefully wait it out — but homeowners who need to sell their home may be facing a short sale during the next downturn.

The US is rapidly closing in on its longest economic expansion on record, and if it lasts beyond next summer, it will set a new record. However, there is nothing automatic that says the economy will shift toward a recession once it passes that hallmark.

“While home value appreciation is slowing, it’s still growing more than twice as fast as its historic average pace. While buyers certainly have more bargaining power than they did a year ago, nationwide it’s still a seller’s market and should continue to be so on the near horizon,” says Terrazas.

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