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Home Values Flatten in Short Term; Yearly Declines Shrink, but High Rates of Foreclosure, Negative Equity Expected to Delay True Recovery

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house_cnsmr_8_12RISMEDIA, August 12, 2009-Home values in the United States posted their 10th consecutive quarterly decline, falling 12.1 percent year-over-year, according to a Zillow Home Value Index of $186,500, according to the second quarter Zillow Real Estate Market Reports. But for the first time since home values started to fall in 2007, the rate of year-over-year decline has shrunk slightly compared to the previous quarter, with home values falling 12.1 percent as opposed to 12.4 percent year-over-year in the first quarter. The Zillow Home Value Index measures the value of all homes in an area, and the Q2 Real Estate Market Reports encompass 161 metropolitan statistical areas (MSAs).

Home values have flattened significantly in the short term, with the Zillow Home Value Index falling 2.7 percent from the first quarter to the second quarter, and falling only 0.9 percent from May to June.

Nationally, the total number of home sales in June fell 23.7 percent versus a year earlier. However, total home sales rose 3.8 percent in June versus May. Additionally, in 39 markets, home sales increased year over year. Some of these larger markets include Miami-Fort Lauderdale, Los Angeles and Phoenix.

Despite encouraging signs in some markets, distress signals tracked by Zillow remain high, suggesting that for most U.S. metropolitan areas the bottom of the market has not yet arrived, at least in terms of home values.

Negative equity remains high, with 23 percent of all owners of single family homes with mortgages owing more on their mortgage than their home is currently worth, relatively flat compared to 22 percent in the first quarter. Foreclosure re-sales made up more than one-fifth (22 percent) of all home sales nationally in June, and 29.2 percent of all homes sold in June were sold for less than what the owner originally paid.

Meanwhile, 29 percent of homeowners say they would be at least somewhat likely to put their home on the market if they see signs of a turnaround, according to Zillow’s second quarter Homeowner Confidence Survey, signaling an abundance of potential shadow inventory waiting in the wings.

“While we are encouraged by the increasing sales in many markets and the overall improvement in the rate of decline of the Zillow Home Value Index, I hesitate to be overly optimistic for the near future,” said Dr. Stan Humphries, Zillow chief economist. “There are still many hurdles to true market recovery. Foreclosure re-sales are buoying overall sales numbers, but their low prices are keeping home values down. Reports of increasing mortgage defaults signal that foreclosures are likely to increase again and peak in mid-2010. With increasing unemployment and high rates of negative equity, we have a fertile breeding ground for even more foreclosures, which add to the already-high level of for-sale inventory that needs to be cleared before values begin to rise.

“While the abundance of affordable foreclosure properties is a boon for many first-time homebuyers, I don’t believe we’ll see significant recovery until demand-side fundamentals improve, and more move-up and move-across buyers re-enter the market.”

A real estate market bottom may be closer in some areas than in others. Eighteen of 142 declining MSAs have posted at least three consecutive quarters of smaller year-over-year home value declines, signaling a true trend. Nine of those markets are in California, where housing markets have been hard-hit by foreclosures and declining values. Those markets are:

• Los Angeles MSA
- Home values there have fallen 34.8 percent from the peak of the market in 2006.
- Sales were up substantially in June, rising 11.4 percent compared to the same time last year.
- The Zillow Home Value Index fell 14.9 percent, compared to 18.6 percent in the first quarter.

• San Diego MSA
- Home values have fallen 35.7 percent since the peak of the market in 2005.
- Sales were up 9.7 percent year-over-year in June.
- The Zillow Home Value Index fell 14.5 percent year-over-year in Q2, compared to 18.1 percent in Q1.

• Stockton, Calif. MSA
- Home values have fallen 60.9 percent since the market peaked in 2006.
- In June, sales were down 12 percent year-over-year.
- The Zillow Home Value Index fell 29.9 percent in the second quarter, compared to 32.9 percent in the first quarter.
- Foreclosures continue to be an issue, however, with 69.2 percent of all sales in June being foreclosure re-sales.

• Other California markets with three consecutive quarters of shrinking year-over-year declines are:
- Oxnard MSA
- Santa Rosa-Petaluma MSA
- Modesto MSA
- Vallejo-Fairfield MSA
- Yuba City MSA
- Napa MSA

In total, 142 U.S. metropolitan areas experienced year-over-year home value declines, eight markets were flat, and 11 markets experienced year-over-year appreciation in home values.

The full national report, in its new, interactive format, will be available at www.zillow.com/local-info on Tuesday, Aug. 11. Additionally, in most areas data is available at the state, metro, county, city, ZIP and neighborhood level.

For more information, visit www.zillow.com.

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