Many of you have already seen my post about Zillow’s county-by-county graphic showing the percentage of underwater mortgages around the country. Here in Chatham County, 37% of home mortgages are underwater (i.e., have negative equity). (Keep in mind that about a third of residential properties nationwide have no mortgage.)

The picture is pretty bad in the rest of the Savannah metro area too, with Bryan County at 30% and Effingham County at 38%.

Many and probably most of those mortgages will not result in foreclosures or short sales — folks will just keep paying because they can afford to and have no other options.

That’s just one issue that remains a drag on the local market.

While it’s looking increasingly like home prices nationally might have bottomed or might literally be bottoming right now (several home indices are showing more or less stable prices and Case-Shiller for March is expected to show minimal declines on average), the same can’t necessarily be said about metro Savannah home prices.

The national leveling off makes sense for at least three separate reasons:

  • The price-to-rent ratio has returned to an acceptable level, meaning that in many areas home prices and mortgage rates have fallen to the point that buying is now competitive with renting.
  • Home prices overall have fallen close to the historical trend line, with price appreciation just slightly above the inflation rate.
  • The inventory of existing homes listed for sale has fallen nationally to 6.6 months. That’s still a bit high, but far off the peak — in other words, more sellers will manage to sell sooner than in recent years.

A graph from Calculated Risk:

As you can see, we’ve seen dramatic reductions over last year in the amount of inventory listed for sale, and the months of supply has fallen dramatically because of increased sales and decreased listings. Note that Calculated Risk has drawn a line at the 6-month mark, which is often described as the level at which a housing market is “balanced”. Note, however, that in the early part of this century the inventory was in the 4-5 month range.

As you look hopefully at the falling inventory, keep in mind that we’re going to see an unusually large number of distressed properties continue to come on the market  for perhaps a few years, and we’re going to see tighter lending standards in place for the foreseeable future. Add in a struggling job market (in part because of the weakness in new home construction).

Keep in mind too that 6.6 months is the national average.

In April, the Savannah area MLS had 3,694 residential listings vs. 363 sales (April sales were actually a little less than March). Click here for more data.

That’s 10.2 months of inventory. We have an unusually high level of inventory, especially at some of the higher price points.

And if anyone tries to tell you that the inventory level is back to normal or that the Savannah area is somehow exceptional, don’t believe them. Our inventory has fallen from 13.8 months in April 2011, but it’s still too high to suggest stable home prices.

But there are other forces that might help stabilize home prices, especially the price-to-rent ratio I noted above.

So I doubt we’ll see a broad across-the-board tumble from here, but we’ll likely see continued declines in many areas, however slight. And there’s absolutely no reason to expect any significant appreciation, except perhaps in areas that collapsed under the weight of distressed sales.

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