$2 Trillion in Home Values Lost in 08

New analysis of Zillow’s Real Estate Market Reports shows that U.S. homes will have lost well over lost $2 trillion by the end of 2008; as of September 30, $1.9 trillion in home values had been lost since the first of the year and all indicators show that home values are continuing their decline in most areas through the fourth quarter.

As a comparison — U.S. homes lost $1.24 trillion in value in all of 2007.

The big question is, of course, what does this mean for 2009, and will any markets see a bottom?  No markets are close enough to call, but here are some indicators which would tell us a regional bottom is approaching:

• At least three consecutive quarters of improving year-over-year change in home values.  Several of the 163 markets we track showed slightly smaller year-over-year declines in Q3 vs Q2 — these markets include the San Francisco Bay Area, Atlanta and St. Louis.  However, we’d want a couple more quarters of this before we call this a general improvement.  Just last week I spoke with a group of top-producing agents in San Francisco, who told me activity in October and November slowed substantially over Q3, much more so than usual this time of year.  Job losses and tightened consumer spending may halt any improvement trend.
• Fewer foreclosure sales.  Foreclosure moratoriums and loan modification programs helped to decrease the number of foreclosure filings in November, but the moratoriums are temporary.  With home values continuing to decline, most current efforts may simply delay some foreclosures, not prevent them.
• Declining levels of inventory / increasing sales.  Lower mortgage rates are having an effect on refinancing activity, but it’s yet to be seen if this (or any Treasury action to push mortgage rates down to 4.5%) has enough of an impact on buyer activity to incite a turnaround.

The takeaway — no real answer today for 2009, unfortunately.  The first quarter — with a new administration, likely further foreclosure prevention efforts, and perhaps even lower mortgage rates — could be a bellwether for the rest of the year.

One more piece of good news: Loan requests on Zillow Mortgage Marketplace are up more than 70 percent this month, and re-fis are making up a huge chunk of that. Look for more details here.