While home values are still on their way down, falling 0.5% from April to May, there’s a bit of good news hidden in the May 2011 Zillow Real Estate Market Reports. May marked the fifth consecutive month with slowing rates of depreciation (last December, for example, home values were falling almost twice as fast — 0.9% in one month). Since this improvement is happening without government intervention like last year’s homebuyer tax credits, that means it’s more likely to stick. Slowing depreciation rates are a necessary ingredient for market stabilization.

But, like any piece of data to do with the housing market, it’s important to take close look and make sure we’re being realistic about our expectations. Zillow Chief Economist Dr. Stan Humphries cites a slower foreclosure pipeline (it’s taking longer for homes to go from start to finish in the foreclosure process), combined with still-high numbers of homes starting the foreclosure process, as a couple of reasons why this slowing depreciation doesn’t mean we’ll reach bottom in the next several months. Dr. Humphries’ full brief on this month’s data can be read on the Zillow Research page.

So our forecast stands: Nationally, home values should reach a bottom in 2012, at the earliest. After that, we’ll be looking at several years of stagnant prices, followed by more historically normal appreciation rates of 2-4% per year.

Locally, some individual markets are faring even better. Many Florida metropolitan statistical areas (MSAs) are showing positive or near-flat changes in home values (the Miami MSA saw home values rise 0.2% in May, and Sarasota was up 0.9% during the month). To see find your region, city, ZIP code or neighborhood, visit our data pages.

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