The Water Keeps Rising on Homeowners

Depending upon which statistics you believe, home values fell somewhere between 5% and 15% in 2008 alone. But the national figures probably don't mean much to most mortgage servicers and investors. They are looking for a sign that the market will steady.

Unfortunately, the outlook remains bleak.

Analysts from Zillow.com (which estimates home values fell 12% last year, with much of the decline coming in the fourth quarter) believe that 18% of homeowners ended 2008 underwater on their home loan.

Zillow estimates that homeowners lost $3.3 trillion in equity value last year. Since the peak of the housing boom, Zillow says homeowners have seen $6.1 trillion of equity evaporate. So it's little wonder that foreclosure sales made up more than one of every five transactions last year, according to Zillow. Another 11% of sales in 2008 involved lender mediated short sales. And who knows how many sales might be described as "distressed" even if the servicer wasn't involved.

"A witch's brew of economic insecurity, foreclosures and tightened lending standards are helping to keep hard-hit markets down and to widen the scope of markets showing declines in home values," said Stan Humphries, Zillow vice president of data and analytics, in a news release.

Separately, economists at Moody's Economy.com predict that the value of homes nationwide will be more than a third lower when prices finally do bottom out late this year. Specifically, Moody's anticipates a 36% drop in home values nationwide from peak to trough.

Mark Zandi, chief economist of Moody's economy.com, said data suggest that despite the gloomy economy, a bottom for the housing downturn is in sight.

But even Moody's prediction for a bottom has a contingency. Mr. Zandi said that "strong action by policymakers" is needed to support the economy and ensure that prices begin to recover by the end of this year.

Currently, Moody's says that home prices have already fallen about 25% from their peak. Overall, Moody's believes prices will fall another 11% before they start to stabilize.

"Policymakers have not yet been able to break the downward spiral that has developed among the sinking housing market, job losses, frozen credit markets and rising foreclosures," Mr. Zandi said.

While the pain will not be spread evenly, Moody's says it will be widespread, with 62% of the nation's metro areas seeing double-digit declines in home values. Declines will exceed 20% in about 100 of the nation's 381 metro areas.

And the hardest-hit areas, including southeast Florida and California's Central Valley, are expected to see home prices fall by more than 50%.