Home values in May fell 0.48% relative to April levels and fell 7.6% relative to May 2010 levels (see Figures 1 and 2). This marks the fifth consecutive month of improvement in monthly depreciation of home values nationally. By comparison, home values nationally were falling almost twice as fast in December (-0.86%).

Two aspects of this current trend warrant particular note. First, the improvement in depreciation rates is occurring without the benefit of tax credits or foreclosure moratoriums and, thus, can be viewed as a more “natural” market-based trend in contrast to prior periods of improvement in 2009 and 2010.

Second, the rate of improvement is quite robust. Across the first five months of 2011, home value depreciation has improved 0.08% per month on average. While this pace of improvement will undoubtedly slow once the peak months of the 2011 home shopping season are behind us, it’s interesting to note nonetheless that this pace of improvement would point to a bottom in home values in early 2012 (a bottom defined here as an end of sustained monthly depreciation). Just two months ago, the pace of improvement was just 0.03% per month and this pace pointed to a bottom in mid-2013. If this current trend is sustained, it would make a bottom in mid-2012 much more likely.

It’s important to note, however, that some of the positive trend is undoubtedly due to the lower rate at which foreclosures are transitioning into the market (after the fall robo-signing slowdowns). This means that the pipeline of foreclosures is growing in size and, thus, will be a factor in the markets for a longer period of time. At this point, we are likely trading smaller home value declines in the near-term for a longer wait before we see healthy home value appreciation.

While there have been substantial differences in depreciation rates between homes in the top and bottom tiers of home values since the second quarter of 2009, these differences have narrowed significantly in 2011 (see Figure 4).  During much of the past couple years, the bottom tier of homes has taken it on the chin in terms of home value loss but currently all three tiers of housing inventory appear to be moving in line with one another.

Foreclosure liquidations remained steady in May with 1.04 out of every 1,000 homes in the country being liquidated in foreclosure (see Figure 3). This rate is substantially lower than the high point of 1.16 per 1,000 homes reached in October 2010 before the foreclosure slow-downs began.

Foreclosure re-sales also remained steady in May with foreclosure re-sales representing 23% of all transactions in the month.  This ratio will begin to decrease during the summer months as total sales volume increases thus pushing down the proportion of foreclosure re-sales in the monthly mix.  As usual, it’s important to note that this metric does not include short sales which may make up an equal portion of transactions in a given month currently. See the interactive data below for foreclosure re-sales rates by metro market.

All in all, not a bad month in terms of housing performance relative to where the market has been.