Winter Chill Brings More Home Value Declines

Posted by: Stan Humphries    Tags:      Posted date:  January 10, 2011  

In November, the decline in home values from the national peak in June 2006 officially surpassed the magnitude of declines experienced during the Great Depression, falling 26% from peak levels compared to the 25.9% decline in the five years between the end of 1928 and the end of 1933. And November marked the 53rd consecutive month of home value declines at the national level. The national Zillow Home Value Index fell to $177,412, resetting home values to levels last seen in October 2003. Home values were down 5.1% from their levels in November 2009 (see Figure 1 below).

More worrisome, the pace of home value declines also notched up again with the monthly depreciation rate increasing to 0.78% in November. This is the highest rate of monthly depreciation since February 2009. The highest level of monthly depreciation seen in this housing downturn occurred in October 2008 when home values fell 1.36% from the prior month.

We’re still seeing significant weakness in the lowest home value tier, particularly with the expiration of the Federal home buyer tax credits. Value tier breakdowns across some of the top metros are shown below. Weakness in the bottom tier of homes naturally translate into the higher tiers as these homeowners become exposed to negative equity (and thus are removed from the demand equation altogether) or have less money to spend buying their next home. See the interactive data below for value tier data in all metro regions (and ability to download it).

ZHVI by Home Value Tier (Washington)
ZHVI by Home Value Tier (Tampa)
ZHVI by Home Value Tier (Miami)
ZHVI by Home Value Tier (Seattle)

Of the 157 metropolitan regions tracked, 132 metros experienced monthly declines in home values (84%), 10 metros were flat from the prior month (6%), and only 15 metros saw monthly increases (10%). On a year-over-year basis, 136 metros were down, 13 regions were flat, and eight regions were up. See the interactive chart below for data on each of these metro areas.

Foreclosure liquidations tumbled from 1.15 out of every 1,000 homes in October to 0.94 out of every 1,000 homes in November (see Figure 2 below), but this is undoubtedly an artificial dip created by the slowdown in foreclosure processes in the wake of the recent “robo-signing” scandals. Look for the liquidation rate to increase again in December and likely reach new peak levels in 2011.

The past few weeks have seen several pieces of relatively good news about the wider economy despite a somewhat disappointing December jobs report. According to the report, the unemployment rate fell from 9.8% to 9.4% but largely due to a decline in the labor participation rate to 64.3%. Only 103,000 jobs were added in the month, below consensus expectations.

Despite last week’s jobs report, there are signs that the broader economy is doing better than it was just three months ago. This will ultimately help the housing market, primarily in the form of decreased unemployment which will increase household formation and consumer confidence. Unfortunately, this aid to the housing market will be longer term and more gradual. For at least the next 6-9 months, the larger factors affecting the housing market that will produce more home value declines will be the excess inventory of homes, high negative equity and foreclosure rates, and weakened demand due to elevated unemployment. Even after we’ve hit bottom, hopefully later this year, these factors will linger over the market keeping a firm lid on home value appreciation.


Photo credit: Paranoidnotandroid, Flickr.com


About the author
Stan Humphries
Stan is Zillow's Chief Economist. To learn more about Stan, click here.