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Home Values To Drop By $1.7 Trillion This Year

This year has not been kind to U.S. home values. Homes are expected to lose $1.7 trillion in value this year — 63 percent more than they lost during 2009, according to a report released today by online real estate site Zillow.

The second half of 2010 will account for the bulk of the loss, $1 trillion, compared with $680 billion from January to June, the company reported.

“Government interventions like the homebuyer tax credit helped buoy the market during the second half of 2009 and the first half of 2010, but we saw a renewed downturn in the last half of this year,” said Stan Humphries, Zillow’s chief economist, in a statement.

“It’s a testament to the nearly irresistible force of the overall market correction that government incentives can only temporarily hold back the tide, and that the market will ultimately find its natural equilibrium of supply and demand.”

Since the market peaked in June 2006, homes have lost an estimated $9 trillion in value, falling to a total estimated value of $22.7 trillion, Zillow said. By comparison, the war in Iraq had cost a total of $751 billion by the end of fiscal year 2010, according to a September report by the Congressional Research Service — making the loss in home values the cost equivalent of 12 Iraq wars.

Only 31 of the 129 markets Zillow tracked showed gains in home values this year, the report said. Among the 20 largest markets, only three saw an increase: Boston ($10.8 billion); Riverside, Calif. ($7.3 billion); and San Diego ($10.2 billion). In total dollar amounts, New York City has lost the most in the past year ($103.7 billion), followed by Chicago ($48 billion) and Los Angeles ($38.6 billion).

Zillow calculates home values using its proprietary Zestimate formula, which includes public records. To work out the change in home values during the year, the company subtracted the forecasted estimated value of all homes in an area in December 2010 from the total value at the start of 2010.

The end of the year is also likely to see a higher percentage of homeowners underwater. At the end of this year’s third quarter, 23.2 percent of single-family homeowners owed more on their mortgage than their home was worth, compared with 21.8 percent at the end of 2009.

“Unfortunately, with foreclosures near an all-time high in late 2010 and high rates of negative equity persisting, it does not appear that the first part of 2011 will bring much relief,” Humphries said.

A separate survey released this week showed that the majority of U.S. adults do not expect the housing market to recover until 2013 or beyond.

Harris Interactive conducted the survey online from Nov. 2-4, 2010, for property search site Trulia and foreclosure data site RealtyTrac. The survey yielded 2,034 respondents, two-thirds of them homeowners and the rest renters.

While 10 percent of respondents believe housing will recover in 2011, 58 percent believe it won’t recover for at least another two years. More than a fifth believe the recovery won’t happen until 2015 or later.

“More and more, American homeowners, sellers and buyers are tamping down their expectations for a swift recovery in the housing market and bracing themselves for a long, slow climb back to a healthy real estate market,” said Pete Flint, Trulia’s co-founder and CEO, in a statement.

“Government incentives have come and gone and historic lows in interest rates have done little to spur recovery. Then, as if prospective buyers and sellers needed more to be concerned about, the robo-signing issue caused a ‘What’s next?’ fear to surface in the minds of consumers who, frankly, have lost faith in banks and their government to make good decisions.”

The issue arose when employees of major banks admitted to signing foreclosure documents without verification, leading several banks to declare foreclosure freezes pending internal investigations. More than a third, 35 percent, of respondents said they expected the robo-signing controversy to delay the housing recovery; only 6 percent said they thought it would have no effect.

The proportion of respondents who would be willing to walk away from an underwater mortgage rose to 48 percent, from 41 percent in May 2010. Men were more likely than women to consider a strategic default, 57 percent vs. 40 percent, respectively.

The number of respondents who are at least somewhat likely to consider buying a foreclosed property also rose, to 49 percent from 45 percent in May. The vast majority of respondents, 81 percent, believed there were some negative aspects to buying a foreclosure, up from 78 percent in May. The top three concerns were hidden costs, the riskiness of the process, and the possibility that the home would lose value.

Two-thirds of respondents said they would expect at least a 30 percent discount for a foreclosed home compared to a nonforeclosed home, while about one-third said they would expect at least a 50 percent discount.

“It seems like consumer expectations and market realities are beginning to align when it comes to foreclosure discounts. During the third quarter, foreclosure homes sold for an average of 32 percent less than homes not in foreclosure,” said Rick Sharga, senior vice president of RealtyTrac, in a statement.

“It’s also not surprising that we’ve seen an increase in negative sentiment toward foreclosure purchases, where the recent robo-signing controversy has added more confusion to an already complicated process.”