Double Dip in Home Prices Is Likely in 2010

Overall U.S. home values declined again in the fourth quarter of 2009, and fell 5% year-over-year and 0.5% quarter-over-quarter, according to the Zillow Home Value Index. The S&P/Case-Shiller Home Price Index showed mixed data in its January report on house prices ending Nov. 29, but it, too, showed house price declines in November in many markets.While some markets do appear to be finding their bottoms, and some even saw increases in price, the fourth quarter showed values slipping again in many parts of the country. Of the 143 markets tracked by Zillow, 29 showed five consecutive month-over-month increases in home values in 2009 before beginning to flatten or fall again in the second part of the year, among them Boston, Atlanta and San Diego.

But there is some good news: A different set of 29 markets saw prices increases during each month of the fourth quarter. Those rising markets include Los Angeles and New York. You can see how your market did with a new interactive market report available at

"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 in a press release with the report. "What we saw in mid-2009 was a brief respite from a larger market correction that has not yet run its course."

Humphries does see a small silver lining for homeowners in those markets that will experience a double dip in values. "This second dip will not be a return to the magnitude of depreciation seen earlier," he said, "but rather will look more like a modest aftershock of the earlier downturn."

"No Clear Sign Of A Sustained, Broad-Based Recovery"

Humphries credits much of the recent stabilization to the impact of the home buyers' tax credits and lower mortgage interest rates. But the Fed is pulling back from buying mortgage assets, which means interest rates will likely go up, and the tax credits will end in April: Both of those factors will probably lead to fewer people out there buying homes. In addition, the U.S. faces an increasing flow of foreclosures into a market that already has high levels of inventory. Add all of these factors up, and the result points to a further decline in home values, but Humphries says he expects to see a national bottom in prices reached by the middle of the year. After that, Humphries believes, "home values are likely to bounce along the bottom with real appreciation remaining negligible for some time."

Of all single-family homes with mortgages, 21% are now worth less than is owed on them, but that number was flat quarter-over-quarter.

Humphries findings at Zillow are consistent with those of David M. Blitzer, chairman of the Index Committee at Standard & Poor's. When the S&P/Case-Shiller Home Price Index was released in January, he said, "On balance, while these data show that home prices are far more stable than they were a year ago, there is no clear sign of a sustained, broad-based recovery."

In fact, Blitzer said that in four of the markets -- Charlotte, Las Vegas, Seattle and Tampa -- new low index levels were posted. He added, "any gains they might have seen in recent months have been erased and November is now considered their current trough value." He did, however, see steady improvements in Los Angeles, Phoenix, San Diego and San Francisco, which have seen prices increases for six consecutive months.

Based on S&P/Case-Shiller data as of November 2009, average home prices across the United States are similar to levels that were seen in 2003. So if you bought your house after that time, it likely is worth less than the day you bought it. And for many homeowners, the only good news for 2010 is that their homes' values will likely fall less than they did in the previous two years.
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