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U.S. Homes to Lose $1.7 Trillion in Value This Year: Report

by Carrie Bay

According to analysis released Thursday by the research firm Zillow, U.S. homes are expected to lose more than $1.7 trillion in value this year. Since the market peaked in June 2006, the company says homeowners have been stripped of $9 trillion in equity.

To put things into perspective, Zillow cites a report by the Congressional Research Service, which says from 2001 to the end of September 2010, the war in Iraq has cost the United States $750.8 billion. That means the value lost in residential property values since mid-2006 exceeds the cost of 12 Iraq wars.

 The depreciation of residential property values this year is 63 percent more than the $1 trillion lost in all of 2009, according to Zillow.

 The bulk of the total value lost during 2010 came in the second half of the year. From January to June, the housing market lost $680 billion, but from June to December, Zillow projects residential home value losses will top $1 trillion.

 Less than one-fourth of the 129 markets tracked by Zillow showed gains in total home values during 2010. Among those were the Boston metropolitan statistical area (MSA), which saw a $10.8 billion increase in its residential property values, and the San Diego metro area, where home values rose $10.2 billion.

 Dr. Stan Humphries, Zillow’s chief economist, notes that despite a strong start to 2010, by the end of the year homes lost more of their value this year than they did in 2009.

 “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,” Humphries said. “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.”

 Humphries doesn’t see that equilibrium setting in any time soon, though. “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,” he said.

 Declines in home values have led to an increase in the percentage of borrowers who owe more on their mortgage than the home is worth.

Zillow says at the end of 2009, 21.8 percent of single-family homeowners with mortgages were in negative equity. In the third quarter of 2010 – the last time Zillow calculated negative equity – 23.2 percent were underwater.