Despite continued government stimulus in the form of the extended home buyer tax credit, home values in the U.S. fell yet again in the first quarter of 2010. The bright spot, however, is California, where prices have stabilized in many of the largest metropolitan markets.
Home prices nationally fell 3.8 percent in the first quarter from a year ago and 1 percent from the previous quarter, according to a new report from Zillow.com. That marks the 13th consecutive quarter of year-over-year declines.
The pain is widespread, with values down in 106 of the 135 metropolitan statistical areas tracked by Zillow. That pushed more borrowers into a negative equity position, owing more on their mortgages than their homes are worth.
Twenty-three point three percent of all single family homes with mortgages are now "underwater", up from 21.4 percent in the fourth quarter. Negative equity has been linked to a higher number of borrowers voluntarily defaulting on their loans, even when they have the ability to pay. That could be pushing now record foreclosures even higher in the short term.
Heavy investor activity in the foreclosure market, however, has helped to stabilize home prices in California. Thirty-three percent of home sales in San Diego, California in March were foreclosures, and prices were up over 3 percent year-over-year.
“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.
The biggest concern is that the home buyer tax credit, which expired at the end of April, pulled demand forward instead of creating new demand. That would point toward a double-dip in home values this summer.
"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," notes Humphries. "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."