1 in 4 homes 'underwater'

Three years ago, homeowners in Sonoma County watched with glee as housing prices skyrocketed.

Now with the bursting of the housing bubble, many don't dare look.

The reality is too disheartening: 1 in 4 homeowners in Sonoma County owe more on their mortgage than the home is worth, according to a study released Wednesday by Zillow.com, a real estate Web site.

Charles Catlett, a family practice doctor in Santa Rosa, is one of those people who tries not to think about it.

He estimates he owes about $85,000 more than his northwest Santa Rosa home is worth. He bought it in August 2005, during the apex of the housing boom.

"I'm just going to stay where I am and let things run their cycle," he said.

The housing market meltdown has hit nearly every part of the county, but some neighborhoods have been clobbered.

In southwest Santa Rosa, about half of all homeowners are "underwater" -- a term commonly used to describe when the mortgage is greater than the home's value. It is the worst-hit area in the county.

The area has another dubious distinction. About 70 percent of homes sold there during the past year were sold for a loss, according to Zillow.com.

"That's the effect of the subprime problem. It manifested itself most clearly in lower-income areas," said Brian Connell, broker-manager for Frank Howard Allen Realtors in Santa Rosa.

The problem is concentrated in areas of Santa Rosa, Rohnert Park and Windsor where buyers used subprime mortgages and other high-risk loans to purchase homes they ultimately could not afford.

But it stretches into rural hamlets such as Forestville and upscale Wine Country towns like Sonoma -- both have more upside-down homeowners than the national average of 14.3 percent.

Overall, Sonoma County is one of the hardest hit in the nine-county Bay Area, where on average 1 in 5 homeowners are underwater on their loans. Only Solano and Contra Costa counties are worse.

Timing is everything. Most people who purchased homes before 2003 still hold positive equity in their property. But of the nearly 16,000 homes and condos bought from 2005 to 2007, more than half today are now worth less than the mortgages used to purchase them.

In theory, a homeowner is only impacted by the lower value of their home if they choose to sell it. But in reality, it has changed the mood of consumers from Miami to Bodega Bay.

"There is a psychological effect. You feel you are less wealthy, so you rein in spending," said Steven Cochrane, managing director of Moody's Economy.com.

That consumer sentiment helped deliver a body blow to retailers, who saw consumer spending fall at a 3.1 percent annual rate between July and September -- the worst three-month drop since 1980.

Joe Pizzio said he's cut back spending since paying $550,000 for a Rohnert Park home, and then watching its value spiral down.

"I am one of those people whose house is worth less than I bought it for," said Pizzio, a 34-year-old salesman for Jackson's Hardware in San Rafael.

Pizzio bought at the peak of the market in 2005. Now he and his family are paying for that decision, he said, figuring out how to cut back on the little things in life as well as the big things, like Christmas presents.

Like Catlett, he feels less wealthy because he owns a home. It is an astonishing contrast to the mentality of only a few years ago, when home ownership was widely viewed as the paved road to prosperity.

Now Pizzio feels tied down, because if he moves before prices rebound he will suffer a real financial blow, not just a theoretical loss on paper.

"It does affect my long-term goal," he said. "In five years when our child is ready for school, we'd like to move and sell the house. I am just hoping that it works out. But if it doesn't, it doesn't."

Lower property taxes might be the only upside to his predicament.

Pizzio appealed his property tax assessment with the county and got a 20 percent reduction in his bill. He proved that similar recently-sold houses were worth less than what he paid.

"Trying to get the government to charge you less is a pain in the butt, but it was a fight to save money that made it worthwhile," he said.

Zillow calculates the negative equity in homes by first compiling public data such as when a house last sold, the price, and the size of the mortgage.

It then estimates the current value of every home in the United States with an equation that factors in a wide range of data such as a house's size and number of bedrooms, and how much nearby homes with similar features recently sold for.

It compares those two sets of numbers to determine how much equity -- or negative equity -- a homeowner likely has.

Its estimates have come under scrutiny in the past. In fact, half of its individual housing estimates are off by 14.6 percent or more in Sonoma County, said Amy Bohutinsky, vice president of communication for Zillow.

But the company is able to compensate for those individual discrepancies when looking at a larger sample, she said.

Its estimates on underwater homeowners are "conservative," Bohutinsky said. Zillow did not factor in the impact of cash-out refinancing loans, which would have increased the percentage of homeowners with negative equity. It only examined original purchase mortgages, comparing the initial loan amount with the home's current value.

Cochrane said the estimates should be taken with a few grains of salt, but said the trend is an accurate depiction of what is happening.

"I would guess that many home owners don't even know exactly what their home is worth," he said.

But even if people can't pinpoint it exactly, they know they're living in the shadow of a steep economic downturn.

"I have very little net worth because the value of my home has gone down," Catlett said. "I'm not sure there is much I can do about that, except cut back my spending and save more."

Staff Writer Bleys W. Rose and News Researcher Michele Van Hoeck contributed to this story. You can reach Staff Writer Nathan Halverson at 521-5494 or nathan.halverson@

pressdemocrat.com.