Zillow has introduced a new metric called the Home Value Report that should provide some interesting discussion. Its "Zindex" is based on the median Zestimates (Zillow's home valuations) of all homes in an area and it shows how much equity homeowners have gained or lost over the quarter and over the years.

Home values nationwide declined for the fourth consecutive quarter, down nearly six percent year-over-year. Zillow says it's the largest year-over-year decline in more than a decade, according to Zillow's Q3 2007 Home Value Report. This brings the U.S. Zindex&Reg; home value indicator to $244,000, down nearly three percent from the second quarter.

Home price declines have many homeowners worried about their equity, especially those who bought during the last two years when most local markets reached their peak.

As of September 30, nearly 16 percent of homeowners nationwide who bought in the last year and nearly 18 percent of those who purchased two years ago have less value in their homes than their original mortgage amount.

To put that into perspective, nearly one in five or six homeowners is upside down in their homes.

But there's hope. The longer owners are able to stay in their homes, the less likely they are to slide into the negative. For example, of those who purchased a home five years ago, less than 2 percent are under water. And if owners have been in their homes 10 years or longer, negative values are less than one/third of one percent.

What this proves is real estate value is built over time. That's an economic fact of life that was ignored by many speculators when home values were going up in 2004 and 2005.

One difference in equity is the amount homeowners put down. Over the last two years, the median down payment was 10 percent. Five years ago, it was 11 percent. Ten years ago it was 15 percent.

Down payments make a difference in establishing equity, especially when you can't count on the market to appreciate. Ten-year homeowners have 63 percent equity or $220,000 in their homes.

Five-year owners have 41 percent equity or $125,000. Even a two-year owner has 13 percent equity, or $33,000. This is the equivalent of owning only about 200 square feet -- the size of one standard bedroom -- in an average 1,500-square-foot, three-bedroom, two-bath home.

The lesson here is that short-term value declines mostly affect homeowners who either must sell or want to withdraw equity, says Zillow.

Despite decreasing home values and more negative equity, most U.S. homeowners still have positive equity in their homes.

Published: November 23, 2007

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