Underwater and upside down -- Redmond feels mortgage woes

Leslie Pugmire Hole

Spokesman staff

The numbers are more educated estimates than reliable statistics but most professionals who should know seem to agree at least half of the mortgage holders in Redmond owe more to their lenders than their homes are currently worth.

“It’s a hard number to get your hands around,” says Redmond-area real estate agent Barbara Myers. The problem with getting accurate statistics is the number of players in the game: lenders know how many mortgages are in default but not much about the rest; the county assessor’s office knows the current market value of homes but not how much is owed on mortgages, and real estate professionals often know homeowners with “underwater” mortgages but not how many exist in the community.

Regardless of the actual statistics, it’s clear to everyone that it’s not just the number of foreclosures in Redmond that have had a tremendous impact but also the silent majority paying off mortgages that may never break even.

Market plummets

 “In the first six months of 2011 there were 343 sales reported and 258 of those were either bank-owned or short sales,” says Curtis Drahn, real estate appraiser. “Based on those numbers you could jump to the conclusion that better than half the mortgages in Redmond are underwater.”

According to Zillow.com the median house in Redmond in 2008, just before the bottom fell out, was $210,000; in 2011 the median is $125,000. Those rapidly declining values are a reflection of the market, says Deschutes County Assessor Scot Langton.

“It’s so hard to know – where is the ceiling? Where is the bottom?”

Real estate agent Shannon Hall of D & D Realty estimates that most homes in Redmond built before the peak years are valued at the same prices they were in 1999.

Assessed values, the amounts taxpayers see on their tax statement every year reflecting both market and taxable values, represents what was going on in the market about 10 months before the statement appears in the mail, according to Langton.

For the assessors office to determine a home’s market value, comparisons are made not just to similar homes in the same neighborhood but also to how much similar homes sold for and how many homes are for sale in a neighborhood, he says.

“Some areas have been more stable, others very volatile and those we have to revisit more often others. We might see one subdivision down 12 percent, another 30.”

Who is affected?

There are two main victims of the underwater phenomena in Redmond, many experts agree.

“People who bought homes in 2003-07 when things were crazy, most of them are underwater,” says Myers, currently with Coldwell Banker and a real estate agent in Central Oregon for 20 years.

The rest, estimates Langton, are those who’ve owned their homes 15-20 years and leveraged those inflated market values for new loans, increasing their debt to the extent they now owe more than the home is worth.

“Refinancing was incredibly popular there for a while” agrees Drahn, a Redmond appraiser with 40 years experience. “I see a lot of homeowners in that situation, it’s very sad.”

What drove the market, according to him, was the ease of borrowing and loose lending practices.

“There’s been a huge shift in lending practices. There’s a big part of the population that won’t be able to qualify for a loan now. It’s basic supply and demand. We’ll have a huge supply for a while and not as much demand. Values won’t go up until demand does.”

Sell or stay?

So what can homeowners facing underwater mortgages do?

“I suggest that most people stay put if they can,” says Hall. “Most banks won’t even talk short sale to you unless you’ve missed payments.”

Homeowners considering listing an underwater house for sale need to ask themselves if they want to compete price-wise with the glut of bank-owned homes on the market or wait for an exception, says Drahn.

“You’re not going to get your money back, even if you paid a lot down. It used to be that once you decided you wanted to sell, you could start packing. Not anymore.”

Some owners of underwater houses have a hard time coming to terms with the devaluation of their homes, according to Myers.

“People want what they want, not necessarily what the market will bear,” she says.

For the people in the market to buy, the plethora of very cheap bank-owned or short sale homes available make it tough for a homeowner wanting to get a decent price for their home.

“Real estate is a sticky investment, sometimes it’s hard to get rid of it,” says Drahn. “Put yourself in the position of a buyer; they’ll compare prices and if a forced sale house is 20 percent cheaper than your house, which one do you think they’re going to buy?”

Myers isn’t so sure that’s always the case; traditional sales have one advantage, she says: buyers can avoid the red tape hassle and waits that can come with forced sales. And more modest homes are getting more action in the market.

“Anything under the $130,000-$150,000 range is getting multiple offers right now,” Hall agrees. “Investors sitting on the sidelines see an opportunity. If it’s selling for above $200,00 it may be on the market for a while.”

Make yourself comfortable

Unfortunately, there’s not much homeowners can do to boost their home’s value right now, at least not with any certainty.

“You might be there a while so paint it, add on, remodel – but do it for yourself, because you want it,” says Hall. “Value will be determined more by what’s going on in the market, not your upgrades.”

Myers agrees “To do an upgrade now betting you’ll recoup when the market improves is a long shot. It could be two, could be 10 years.”

Paying attention to what’s going on in your neighborhood, especially with any empty homes, might pay off more, Hall suggests.

“One house won’t matter much but if there are several foreclosed houses on your street it could affect the value of yours,” she says. “It might be worth trying to keep up appearances of the empty ones.”

If he was a buyer, Drahn concurs, he’d want a house in a neighborhood that appeared more stable.

“It’s to your advantage if properties in your neighborhood sell for a better price, in terms of market value,” concludes Langton.

What the market will do in the future is anyone’s guess. While most taxpayers will see a further drop in market value on their tax statements this fall, Langston says he expects more positive changes by 2012.

“Normal market values rise 3-6 percent in a year but that can vary wildly,” he says.

Hall expects that more modest houses, which tended to drop less in value when the recession hit, will recover sooner, maybe getting back to 2007 values in 5-10 years. High-priced homes will take much longer, she expects.