South Florida a hot spot for 'underwater' borrowers

Almost half of single-family mortgage holders owe more than houses are worth

By Paul Owers

South Florida Sun Sentinel

August 11, 2009

Nearly half of the single-family mortgage holders in South Florida owe more than their houses are worth, a worrisome reminder of the region's 3 1/2-year housing slump.

In Palm Beach, Broward and Miami-Dade counties, 47 percent of the 837,177 single-family home mortgages are "underwater," according to a second-quarter report released today by Zillow.com, a real estate company that compiles data from public property records.

That's up from 44 percent in the first quarter of 2009. Zillow did not release a percentage for the second quarter of last year.

Nationwide, 23 percent of single-family homeowners with a mortgage had so-called negative equity during April, May and June. Many borrowers who owe more than the houses are worth put little or no money down and paid near-record prices in 2004, 2005 and 2006.

"As a homeowner, how do you deal with that?" said Guy Cecala, publisher of Inside Mortgage Finance, an industry newsletter. "It can burn you up. For a lot of people, there's no way out any time soon."

Because home prices have fallen by more than 40 percent since the boom years, underwater borrowers in South Florida may have to stay put for a decade or more until they can break even in a sale, housing experts say.

In the meantime, these homeowners are at risk for abandoning their properties, which would add to the glut of foreclosures and extend the housing downturn.

"Most people are good people who try to honor their obligations," said Brad Hunter, a housing analyst with Metrostudy in West Palm Beach. "But there are a lot who have lost their jobs or have greatly reduced incomes and can't make their mortgage payments anymore. It's very likely that they will just walk away."

Hunter said homeowners who took out "option ARM," or option adjustable-rate mortgages, in the past few years are in the most danger of being underwater. The balances on those loans have increased while property values decreased.

Last week, a report from Deutsche Bank said that nearly half of all homeowners nationwide could owe more than their properties are worth by 2011. The report said 90 percent of homeowners in South Florida could be underwater in two years.

Cecala doubts the Deutsche report, particularly its predictions for South Florida. With steep price declines easing across the nation, he expects there will be fewer underwater mortgages in the years ahead.

"I don't think the problem is going to get that much worse," Cecala said.

Despite encouraging reports recently on the nation's housing market, Stan Humphries, Zillow's chief economist, worries that the slump will linger as more job losses lead to more foreclosures.

"I hesitate to be overly optimistic for the near future," Humphries said in a statement. "There are still many hurdles to true market recovery."

Other figures of note from Zillow:

Broward home values fell 25 percent in the second quarter, compared with the same period last year. Palm Beach County home values dropped 21 percent. Manalapan, Palm Beach and Hillsboro Beach were the only cities in the two counties to see values increase during the quarter compared with a year ago.

Nearly six in 10 Broward houses and condos sold for a loss during the second quarter. In Palm Beach County, four in 10 sold for a loss.

Palm Beach County houses and condos sold for 10 percent less than the final listing price during the quarter. In Broward, it was 9 percent less.

Zillow, launched in 2006, is a popular Seattle-based resource for buyers and sellers. Home appraisers and others say the company's home values -- called "Zestimates" -- can be wildly inaccurate.

Paul Owers can be reached at Powers@Sunsentinel.com or 561-243-6529.

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