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US real estate market limping towards stabilization but prices vary considerably, latest report show

Residential real estate values in the US continued to decline in the second quarter of 2010, but conditions vary considerably in different states, the latest property index shows.

The Zillow Home Value Index fell 3.2% year on year and 0.6% from the first quarter to $182,500. The national rate of decline decelerated from the first quarter, marking the second consecutive quarter of slowing declines, and negative equity fell to 21.5%, according to the company’s second quarter report.

Conditions varied among individual markets across the country. In California, where both federal and state tax credits are available to some homebuyers, more than a quarter, 27.8%, of markets tracked by Zillow saw increases in home values in the past year.

Home values in five California markets have increased for the past five quarters and four of those have increased by more than 5% since the second quarter of 2009. The Zillow Home Value Index was up 7.3% year on year in the San Diego metropolitan statistical area (MSA), up 5.9% in the San Francisco MSA, up 5.6% in the San Jose MSA and up 5.5% in the Los Angeles MSA.

But property values in Florida and Arizona continued to show dramatic declines, with home values in the Miami-Fort Lauderdale MSA falling 15.2% year on year and home values in the Phoenix MSA falling 11.8%.

‘As the national housing market limps toward stabilization, individual markets are a mixed bag,’ said Zillow chief economist Stan Humphries. ‘The double tax credits for some California homebuyers have certainly stimulated housing demand there and are partly responsible for the rapid, and likely unsustainable, rates of appreciation in many markets across the state,’ he explained.

‘While there is some uncertainty about how home values will respond in those markets once all incentives are removed, it’s certain they can’t continue at their current rates of appreciation, but is unlikely they will re-test the low points reached in 2009,’ he added.

Markets in other parts of the country, like Miami and Phoenix, are not yet showing signs of reaching a bottom in home values. High supply continues to be a challenge in states like Florida and Arizona, the report says.

‘Nationally, home values are moving in the right direction as rates of decline continue to slow. There is a large unknown on the horizon, however, as these second quarter numbers are still heavily influenced by the federal homebuyer tax credits, which were available for homes under contract by the end of April. Home sales are declining significantly in the post-tax credits environment, but the impact of falling home sales on already declining home values is yet to be seen,’ said Humphries.

‘Recent trends in home values suggest the nation could reach a bottom in the latter half of 2010, but we continue to be cautious about the impact of declining home sales,’ he added.

The report also shows that foreclosures again reached a new peak in June, with more than one out of every 1,000, 0.11%, of US homes being foreclosed during the month. Foreclosure re-sales fell in June, making up 16.9% of all US home sale s during the month, down from a 2010 high of 19.8% in February.

Foreclosure re-sales continued to be high in most markets hit hardest by value declines. For example, they made up 55.8% of June sales in the El Centro, California MSA, 54.6% in the Madera, California MSA and 53.6% in the Mercedes, California MSA. Additionally, more than 26% of home sales nationwide sold for less than what the seller originally paid.

Residential property prices in the US increased at one of the slowest rates in a decade between May and June of this year, according to the latest data to be released.

Analysts now expect prices to fall during the rest of 2010 and are warning that a double dip in the real estate market could hamper the country’s economic recovery.

This week has seen a series of gloomy figures released showing that the end of tax benefits for buyers has resulted in a severe downturn in the market.

Earlier this week the latest report from the National Association of Realtors showed that rresidential property sales in the US plummeted in July, falling 27.2% from the previous month, the lowest level since the NAR began publishing its reports in 1999.

Now the latest composite price index from Radar Logic underlines the weakness in the real estate market. Its June RPX composite price index, which measures per square foot home pricing trends in 25 metropolitan statistical areas, shows that over half of the MSAs tracked by the company posted month over month price declines. On a year on year basis, only seven MSAs posted price gains during June.

The 25 MSA RPX Composite price for June 24 was $197.09 per square foot, just $1.09, 0.6%, higher than a month earlier and flat year on year, the second worst performance for the month of June since the beginning of Radar Logic’s data. The average May to June increase over the last ten years has been $2.75, or 1.4%, the firm said.

‘In a sign of weakness to come, the RPX composite price for the Western region hit its peak for the year in May and declined sharply in June. The Western region has been the source of much of the recent strength in the 25 MSA RPX Composite, outperforming the other regions year to date and year on year on a composite-price basis. The end of seasonal price gains in the West suggests that the 25 MSA RPX Composite will soon start to decline as well,’ its report said.

Even those few markets still holding onto annual gains aren’t likely to escape a downturn. Locations like San Jose, San Diego, and San Francisco, the three most improved markets year on year, saw a fundamental shift in the mix of sales away from relatively low priced distressed sales and toward relatively high priced non distressed sales, rather than an improvement in the value of most homes.

‘The broader issue is that in early spring we began to see trends of an overwhelming supply, both shadow and actual inventory. It has now grown from being a simple supply issue to a psychological issue on the buy side. Buyers are going to want bigger discounts,’ said Michael Feder, chief executive of Radar Logic

Feder said that borrowers are now faced with growing negative equity and a herd like mentality where strategic default may take hold of entire neighborhoods.

Sales are also falling. Transaction dropped 7.3% in June relative to May, the single largest monthly decline ever observed for June since the beginning of Radar Logic’s historical data in January 2000. In comparison, sales activity increased from May to June in all 25 MSAs in both 2008 and 2009.

Radar Logic expects a decline in sales activity and prices during the rest of the year. Its analysis is backed up by another report that shows confidence in the property market is declining.

The new August MacroMarkets home price expectations survey that questions economists, real estate experts, investment experts and market strategists, predicts house price declines for the remainder of the year, with cumulative negative activity likely until 2012 and beyond.

‘For the third consecutive month, the consensus from the experts indicates weakened overall confidence in the US housing recovery, with only 21% of our panelists now predicting positive growth in prices nationwide for 2010, and average expected cumulative price appreciation through 2014 falling almost one-third since our inaugural survey just three months ago,’ said Robert Shiller, MacroMarkets co-founder and chief economist.

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