Zillow published some stunning numbers yesterday regarding the US housing market. According to their analysis they believe “one out of two homeowners who purchased during the national market peak in 2006 are currently “underwater” on their mortgage”. This is a lot of people, and it does not appear to let up too much in 2007 either, because they claim “45% of homeowners who purchased last year (2007) are already underwater on their mortgages”.

This is not good news. However, is this a reason to walk away from your home, like so many are doing? In my opinion – NO! In order to put things in perspective I ran a hypothetical scenario to see how long it would take to recoup the equity. If you bought in 2006 with no down on a mortgage of $200,000 and experienced a 25% decline since. Then your home would be valued at $150,000 today. Now at the historically average appreciate rate of 6%, it would take you five years (from today) to be back at 2006 home price levels. (Side note: I sincerely believe we’ve hit bottom.)

Certainly not something you may have hoped for, but it’s not as dire as you may think. Five years isn’t too long of a time, it goes by pretty fast. Even if you purchased on a five year ARM – you’re almost covered. Also, remember ARM’s can reset lower too – if the index is falling. Even if rates go up when it adjusts, I’ve run situations for clients where the saving they received against a 30-year mortgage pretty much covers the increased payment for about a year or so (assuming its a five year ARM of course). More importantly you have five years to figure something out -maybe you make extra payment so increase your equity? Maybe you save some more. What ever the case you have five years to make a plan. The situation is completely different of course if you are in any kind of negative equity loan program.

Now, that I may have assured you a bit, let me share the rest of the bad news. Phoenix is cited in Zillow’s report as one of the hardest hit markets. I share with you some of the charts they have for Phoenix. To read the full report head on over to the ZillowBlog.