Zillow’s fourth quarter Real Estate Market Reports. was released today and it says U.S. home values posted their largest quarter-over-quarter decline since Q1 2009. According to the report, home values dropped 2.6 percent nationally.

In addition to the huge home value drop, negative equity rose to 27 percent of all single-family homes with mortgages, an increase from 23.2 percent in Q3 2011.

Homebuyer tax credits and the national foreclosure moratorium are bearing the brunt of the blame for the disheartening numbers in the fourth quarter.

Key facts from the Zillow.com report:

  • U.S. home values posted their largest quarter-over-quarter decline since Q1 2009, falling 2.6 percent, as the effects of the homebuyer tax credits wore off.
  • Negative equity rose to 27 percent of all single-family homes with mortgages, from 23.2 percent in Q3. Accelerated home value declines and a temporary slowdown in foreclosures both caused negative equity rates to jump.
  • Foreclosures fell due to bank moratoriums and more drawn-out foreclosure processes following the “robo-signing” controversy.
  • In December, less than one out of every 1,000 (0.09 percent) homes in the country was lost to foreclosure, down from 0.12 percent in October, when they peaked.
  • Foreclosures are expected to rise again in early 2011.

Read the full press release below:

Tax Credit Hangover Continues as Home Values Drop, Negative Equity Rises in Fourth Quarter

Negative Equity Rises to 27%; Foreclosure Moratoriums at Least Partly Responsible for Increase, According to Q4 2010 Zillow® Real Estate Market Reports

SEATTLE – Feb. 9, 2011 — Home values in the United States posted their largest quarterly decline since the first quarter of 2009, falling 2.6 percent as the temporary stimulus of the home buyer tax credits wore off, according to Zillow’s fourth quarter Real Estate Market Reports[i]. The Zillow Home Value Index[ii] declined 5.9 percent year-over-year in the fourth quarter to $175,200. Home values have fallen 27 percent since they peaked in June 2006.

Accelerating home value declines, as well as a slowdown in the nation’s foreclosure rate following the late-2010 robo-signing controversy, contributed to an increase in negative equity. At the end of the fourth quarter, 27 percent of single-family homeowners with mortgages owed more on their mortgage than their homes were worth, up from 23.2 percent in the third quarter.

Less than one in every 1,000 (0.09 percent) U.S. homes were liquidated in foreclosure[iii] in December, down from 0.12 percent in October, when foreclosure liquidations peaked. Foreclosures are expected to increase again in early 2011, which may cause negative equity to fall as some underwater homeowners lose their homes to foreclosure and are no longer in negative equity.

With the end of the homebuyer tax credits in mid-2010, home value declines accelerated toward the end of the year. When they were in effect, the credits tempered home values declines – nationally, home values fell only 0.9 percent from the first to the second quarter of 2010 – but values resumed their decline after the credits’ expiration, falling 2.6 percent from the third to the fourth quarter.

“While the tax credits did not hurt the housing market, they did delay its bottom by interrupting the housing correction that was taking place,” said Dr. Stan Humphries, Zillow chief economist. “Home value trends in the fourth quarter remained grim, but the good news is that these declines, while painful in the short-term, mean we’re getting closer to the bottom. The housing recession is likely in its death throes, and we expect to see sales pick up in early 2011. That will lead the way to home values stabilizing and an eventual bottom later this year, although it will take several months of increased sales activity before values begin to respond.”

Largest 25 Metropolitan Statistical Areas Covered by Zillow

Zillow Home Value Index

Q4 2010 QoQ Change YoY Change Change from Peak Negative Equity*
United States $175,200 -2.6% -5.9% -26.7% 27.0%
New York, NY $351,900 -2.4% -5.0% -23.0% 15.0%
Los Angeles, CA $399,900 -3.3% -3.1% -34.0% 20.2%
Chicago, IL $175,100 -6.5% -11.3% -35.8% 38.6%
Dallas, TX $125,300 -4.1% -6.0% -13.6% n/a
Philadelphia, PA $191,000 -4.3% -9.4% -18.2% 19.6%
Miami-Fort Lauderdale, FL $139,100 -3.3% -15.4% -54.8% 42.8%
Washington, DC $309,100 -2.5% -5.0% -29.6% 26.0%
Atlanta, GA $128,100 -4.3% -15.3% -27.5% 54.0%
Detroit, MI $73,200 -7.5% -17.4% -52.3%