Zillow Report Shows Early Signs of Double Dip in Home Values

The latest Zillow Real Estate Market Report shows that home values across the country declined again in the 4Q of 2009, marking the 12th consecutive quarter of year-over-year declines.  The report shows that home values in 29 of the 143 markets tracked by Zillow have flattened or have begun to decrease again after showing at least five consecutive monthly increases during 2009 – early signs of what could become a ‘double dip.’

Home values in an additional 29 markets, including the Los Angeles and New York MSAs, increased on a month-over-month basis each month throughout the fourth quarter. However, the rate of increase slowed from November to December in 21 of those markets, and several appear likely to experience several months of sustained decline in early 2010.

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"While we have seen strong stabilization in home values during 2009, there are clear signs that they will turn more negative in the near-term," said Zillow Chief Economist Stan Humphries. "What we saw in mid-2009 was a brief respite from a larger market correction that has not yet run its course. The good news is that, for those markets that will see a double dip in home values before reaching a definitive bottom, this second dip will not be a return to the magnitude of depreciation seen earlier, but rather will look more like a modest aftershock of the earlier downturn.

"The recent stabilization owed a lot to policy support in the form of tax credits, lower interest rates and increased Federal Housing Administration lending. The remaining correction in home values we’ll see in the first half of this year is a function of market fundamentals, such as the increasing flow of foreclosures, high levels of inventory in the market and a probable decrease in demand as the impact of the tax credit wanes and mortgage rates rise. While the next few months are likely to bring further home value declines in most markets, we do expect to see a national bottom in home prices by the middle of this year. Thereafter, home values are likely to bounce along the bottom with real appreciation remaining negligible for some time."

Continued High Negative Equity and Home Value Declines Put a Damper on an Encouraging 2009

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