4 signs your home is about to lose value
September 23, 2009 · Tagged with Real Estate
Whether you’re at risk for falling behind may have more to do with the economy and your neighborhood than your job, your credit or your income. Here are four warning signs that you’re heading underwater.
1. Foreclosures in Your Neighborhood
The quickest way to end up underwater is to live in a neighborhood that’s plagued by foreclosures.
When one home on your block goes into foreclosure, your home’s value drops by 1%, Zandi says. But that isn’t a one-to-one relationship. If two homes on a block go into foreclosure, your home’s value will drop by more than 2%.
As homes go into foreclosure, they create a domino effect, lowering home values throughout a neighborhood in a cascade beyond homeowners’ control.
2. Homes Lingering on the Market
When “For Sale” signs linger in a neighborhood for three or more months, that may mean buyers and sellers can’t agree on a price. In that environment, homes are unlikely to sell unless the seller lowers their asking price.
“The time on the market is always a good barometer of demand for homes and for the price homes are transacting at,” Zandi says. “The longer it appears that neighbors are taking to sell their home the more likely it is they’re not getting the price they want and that prices are falling.”
Compare the time it took for homes to sell in your neighborhood three years ago vs. today; if it’s taking weeks or months longer to sell, the prices homes can fetch are dropping, Zandi says.
3. 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 fifth-worst among 372 metropolitan areas at 17.6%, according to June 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 27.5%.
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.