U.S. Home Values to Drop by $1.7 Trillion This Year, Zillow Says

U.S. home values are poised to drop by more than $1.7 trillion this year amid rising foreclosures and the expiration of homebuyer tax credits, said Zillow Inc., a closely held provider of home price data.

This year’s estimated decline, more than the $1.05 trillion drop in 2009, brings the loss since the June 2006 home-price peak to $9 trillion, the Seattle-based company said today in a statement.

“It’s definitely going to continue into 2011,” Stan Humphries, Zillow’s chief economist, said in an interview on Bloomberg Television today. “The back half of 2010 looked horrible and 2011 should look like the mirror image of that.”

The drop in home values pushed more buyers underwater, meaning they owe more on their mortgages than their homes are worth, Zillow said. The percentage of homeowners with mortgages with so-called negative equity reached 23.2 percent in the third quarter, up from 21.8 percent at the end of 2009.

Housing demand has slumped since the start of the year as the government tax credit expired and unemployment hovers near 10 percent. Sales of existing homes in October fell to an annual pace of 4.43 million, compared with 5.98 million a year earlier and an annual average of 5.81 million over the past decade, the National Association of Realtors said Nov. 23. The median price was $170,500, down from $172,000 a year earlier.

Prices are likely to stop falling in the second half of next year and take another three to five years before making strong gains, he said.

“We think appreciation will be after 2014, essentially,” Humphries said.

Tax Credits End

More than $1 trillion of this year’s decline in home values occurred in the second half, Zillow said. Federal tax credits of as much as $8,000 for qualified first-time homebuyers and $6,500 for repeat buyers required a sales contract by April 30.

Only 31 metropolitan areas, or fewer than one-fourth of the 129 tracked by Zillow, had gains in home values this year. They include Boston and San Diego.

Zillow’s findings contrast with reports by the Federal Housing Finance Agency, the S&P/Case-Shiller index and the National Association of Realtors, which show home prices found a floor in early 2009, said Walter Molony, a spokesman for the Realtors group.

“We are projecting essentially no change in values from 2009 and view Zillow’s estimates as completely wrong,” he said in an e-mail.

Weak Demand

U.S. home prices will decline as much as 11 percent by 2012 as weak demand and rising inventory extend the housing slump, Morgan Stanley said in a report yesterday.

Prices will be as much as 36 percent below their 2006 peak before finding a bottom, Morgan Stanley analysts led by Oliver Chang wrote. Sales will stay “depressed” through next year amid tightened lending standards, they said.

As many as 8 million homes are in some stage of default or foreclosure, known as shadow inventory, and may be offered for sale over the next five years, according to Morgan Stanley. The looming supply will combine with tight credit and questions about housing-finance regulation to reduce prices 6 percent to 11 percent from current levels, the analysts said.

To contact the reporter on this story: John Gittelsohn in New York at johngitt@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

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