Tax Credit Hangover Continues as Home Values Drop, Negative Equity Rises in Fourth Quarter

SEATTLE, Feb. 9, 2011 /PRNewswire/ -- Home values in the United States posted their largest quarterly decline since the first quarter of 2009, falling 2.6 percent as the temporary stimulus of the home buyer tax credits wore off, according to Zillow's fourth quarter Real Estate Market Reports(1). The Zillow Home Value Index(2)  declined 5.9 percent year-over-year in the fourth quarter to $175,200. Home values have fallen 27 percent since they peaked in June 2006.

Accelerating home value declines, as well as a slowdown in the nation's foreclosure rate following the late-2010 robo-signing controversy, contributed to an increase in negative equity. At the end of the fourth quarter, 27 percent of single-family homeowners with mortgages owed more on their mortgage than their homes were worth, up from 23.2 percent in the third quarter.  

Less than one in every 1,000 (0.09 percent) U.S. homes were liquidated in foreclosure(3) in December, down from 0.12 percent in October, when foreclosure liquidations peaked. Foreclosures are expected to increase again in early 2011, which may cause negative equity to fall as some underwater homeowners lose their homes to foreclosure and are no longer in negative equity.

With the end of the homebuyer tax credits in mid-2010, home value declines accelerated toward the end of the year. When they were in effect, the credits tempered home values declines – nationally, home values fell only 0.9 percent from the first to the second quarter of 2010 – but values resumed their decline after the credits' expiration, falling 2.6 percent from the third to the fourth quarter.

"While the tax credits did not hurt the housing market, they did delay its bottom by interrupting the housing correction that was taking place," said Dr. Stan Humphries, Zillow chief economist. "Home value trends in the fourth quarter remained grim, but the good news is that these declines, while painful in the short-term, mean we're getting closer to the bottom. The housing recession is likely in its death throes, and we expect to see sales pick up in early 2011. That will lead the way to home values stabilizing and an eventual bottom later this year, although it will take several months of increased sales activity before values begin to respond."

The accelerated decline in home values brought trouble for home sellers, as more were forced to sell their home for less than they purchased it. The rate of homes selling for a loss reached a new peak in December, with more than one-third (34.1 percent) selling for a loss. The rate of homes sold for a loss has increased steadily for the past six months.

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

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(1) The data in Zillow's Real Estate Market Reports is aggregated from public sources by a number of data providers for 132 Metropolitan Statistical Areas dating back to 1996. Mortgage and home loan data is typically recorded in each county and publicly available through a county recorder's office.

(2) The Zillow Home Value Index is the median Zestimate® valuation for a given geographic area on a given day and includes the value of all single-family residences, condominiums and cooperatives, regardless of whether they sold within a given period. The Home Value Index at the national level is calculated using a weighted average of the median home value for each county and includes data from 440 metropolitan statistical areas. It is expressed in dollars and is for a particular geographic region.

(3) Foreclosures are defined as a Trustee's Deed Upon Sale or equivalent transaction.

SOURCE Zillow.com