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Despite recent economic turmoil, high levels of unemployment and dragging consumer confidence, U.S. home values performed better than expected this quarter, according to Zillow’s Q3 Real Estate Market Reports. U.S. home values were essentially flat from the second to third quarter, falling 0.2 percent. On a year-over-year basis, values were down 4.4 percent.

On a local level, fewer markets saw an increase in home values this quarter as compared with last. Only 26 markets saw home values rise from the second to the third quarter, whereas last quarter 61 markets saw increases on a quarterly basis. While this certainly isn’t news anyone wants to hear, it isn’t cause for renewed worry. The worst of the housing recession is behind us and this is the last bit of the recession that has to play out on our way to the market’s bottom.

As Zillow Chief Economist Dr. Stan Humphries writes on Zillow Real Estate Research, “While we still have a ways to go in terms of home value depreciation, the pace at which home values are falling has declined considerably during the course of this year. This slower pace signals that a stabilization is on the horizon.”

Unemployment and negative equity (at 28.6 percent this quarter), paired with fragile consumer confidence, remain the key factors preventing the housing market from stabilizing. Because of these factors, Zillow maintains the prediction that U.S. home values will hit bottom in 2012, at the earliest.

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