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Zillow finds: Home Values continue to drop in first quarter as California shows signs of life

May 10, 2010

Home values in most U.S. markets continued to decline in the first quarter of 2010, as the Zillow Home Value Index fell 3.8 percent year-over-year, and one percent quarter-over-quarter, to $183,700. However, home values in several large California markets show signs of having reached a bottom, according to the first quarter Zillow Real Estate Market Reports. Housing market conditions varied across the country, and home values in most markets (106 of the 135 tracked by Zillow) continued to decline on a year-over-year basis. Additionally, negative equity across the country remained high, with 23.3 percent of single-family homes with mortgages underwater, up from 21.4 percent in the fourth quarter of 2009. Foreclosures reached a new peak in March, with more than one out of every 1,000 (0.11 percent) U.S. homes going into foreclosure during the month. Home values in several large California markets--the Los Angeles, San Diego, San Francisco, Santa Barbara and Ventura MSAs--have stabilized significantly in the past year, marking what may be a bottom. Home values in those markets have risen significantly for at least the past 10 months, after values in all five markets reached a low point in April or May 2009. Although home values could fall again, it is more likely, given current conditions, that they will remain above their lowest level reached last year than fall below. "It's a very positive sign that several large markets have hit what appears to be a tentative bottom in home values," said Zillow Chief Economist Dr. Stan Humphries. "While this is no guarantee that home values there will not fall again, it is more likely than not that they will remain above their lowest point last year. However, we continue to have concerns about other factors playing out in markets across the country. We suspect that the homebuyer tax credits are, for the most part, stealing demand from later this summer, rather than creating new demand. Even with the tax credits in place during the first quarter, inventory levels were rising, and home values continued to decline at a steady clip, rather than steadying. Because of these factors, we believe national home values are more likely to reach bottom in the third quarter of 2010, rather than in the second quarter, as we had hoped. When we do get there, we expect the high rates of negative equity and foreclosures to keep national home value appreciation near zero for some time, possibly as long as five years." Foreclosure re-sales across the country remained high in March, making up more than one-fifth (22.2 percent) of all U.S. home sales. Foreclosure re-sales also made up the majority of sales in several MSAs, including the Merced, Calif. MSA (66.3 percent) the Madera, Calif. MSA (63 percent) and the Modesto, Calif. MSA (61.7 percent). Additionally, one-third (32.4 percent) of home sales nationwide sold for less than what the seller originally paid. For more information, visit
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