In addition, the Zillow Home Value Index remained relatively flat in the short term, declining 0.4 percent from the end of the second quarter to the end of the third quarter. The Zillow Home Value Index measures the value of all homes in an area, and the Q3 Zillow Real Estate Market Reports encompass 156 metropolitan statistical areas (MSAs).
Foreclosure re-sales remained high, making up more than one-fifth (21.4 percent) of all U.S. home sales in September, and made up the majority of sales in several MSAs including the Merced, Calif. MSA (74.2 percent), the Stockton, Calif. MSA (69.3 percent), the Madera, Calif. MSA (68.7 percent), the El Centro, Calif. MSA (68.1 percent) and the Las Vegas MSA (67.5 percent). Additionally, 26.9 percent of home sales nationwide sold for less than what the seller originally paid.
"The decline in the percentage of homeowners with negative equity is a positive sign, and is directly attributable to the stabilization of home values from the second quarter to the third," said Zillow Chief Economist Stan Humphries. "It is also attributable to many homeowners who were previously underwater on their mortgage losing their homes to foreclosure.
"The next several months will be critical to the housing market. Previously, we'd been expecting to see increasing foreclosure rates during the real estate market's slow winter season, a confluence of events that would likely drive inventory up and prices down. But now, with the extension of the $8,000 first-time homebuyer tax credit and a new $6,500 credit for some repeat homebuyers, we could see a bump in demand that could partially offset the increased supply of foreclosed homes on the market. The credits are likely to bring continued stabilization in prices over this period, versus the price declines that we almost certainly would see otherwise. Whether this stabilization will be sustainable after the tax credits expire, however, is yet to be seen. Some of the demand that we are buying with tax credits we are also borrowing from the future, and will likely have to pay for later in the form of weaker-than-normal demand."
Some markets across the country showed encouraging signs in the third quarter. Home values increased year-over-year in 24 of 156 MSAs and remained flat in an additional 16. Only nine MSAs - including the Merced, Calif., State College, Penn., and Salisbury, Md. MSAs - showed increasing year-over-year declines.
The Milwaukee and Boston metropolitan statistical areas were the largest markets to show positive year-over-year changes in home values, with the Zillow Home Value Index rising 2.6 percent in Milwaukee and 1.6 percent in Boston.
