National Market Continues to Drop; Some Markets Showing First Signs of Slowing Decline
In the just-released Zillow Q1 Real Estate Market Reports, the first quarter of 2009 saw a continued decline of home values with the Zillow Home Value Index (ZHVI) dropping 14.2% on a year-over-year basis to a value of $182,378. From its peak in the second quarter of 2006, U.S. real estate values have dropped a total of 21.8% after nine consecutive quarters of year-over-year declines.
The sharp drops across the country have left eight regions – including the Modesto, Calif., Stockton, Calif. and Fort Myers, Fla. – with median values that are less than half those at their peak. In 85 of the 161 markets covered this quarter, the annualized change over the past five years is negative or flat. For the first time in the data series stretching back to 1996, the five-year annualized appreciation for the United States overall is flat (0.0%). Ten-year annualized appreciation is 4.7%.
Despite the bad news on a national basis, there were a few markets that started to show the first tentative signs of improvement. Markets such as Los Angeles, San Diego, Modesto and Merced – all which went into decline early and have sustained large declines – have now seen two or more consecutive quarters of smaller year-over-year declines in home values than in the previous quarter. Specifically, in the Los Angeles metro area, the Zillow Home Value Index fell 18.9% year-over-year, a smaller decline than the 20.8% and 20.7% declines seen in the third and fourth quarters of 2008, respectively. In San Diego, home values fell 18% year-over-year, after falling 19.1% and 18.9% in the third and fourth quarters of last year. Both markets have been hard-hit by the housing downturn: L.A.’s home values have fallen 33.6% since the peak of the market in the first quarter of 2006, and San Diego’s have fallen 35.4% since that market’s peak in the third quarter of 2005. It’s quite a statement of current market conditions when the good news is that the bad news isn’t getting worse.
Figure 1 below shows the Zillow Home Value Index (ZHVI) for the United States as well as the year-over-year change in the ZHVI. Also charted alongside these two metrics is the change in the year-over-year metric (the second derivative of the ZHVI, for those math-minded). For the national market overall, one can see that the YoY declines continue to worsen. To graphically depict the tentative signs of improvement in the Los Angeles market, Figure 2 shows a similar chart for that region. Here, one can see that, while the ZHVI continues to decline, the YoY change is now getting less negative with each quarter (as shown by the U-shape to the orange line). This is also shown by the fact that the second derivative (light purple line) has become positive in that market. The ZHVI itself will stop declining when the YoY metric returns to zero which, judging by the rate at which the YoY metric has moved in the past, is at least a few quarters away. We’ll have some indication that a bottom in the US market is in sight when we see a similar pattern in its metrics.
Figure 1:
Figure 2:
Dr. Stan Humphries is a real estate economist and real estate expert for Zillow. Stan is in charge of the data and analytics team at Zillow, which develops housing market data for most major metropolitan statistical areas in the U.S., and provides economic research for current real estate market conditions. He helped create the algorithms for the popular Zestimate® home value and the Zillow Home Value Index (ZHVI).
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