Home values essentially held steady from May to June as the volume of sales picked up by 3.8 percent, according to an index compiled by real estate search and valuation site Zillow.com.

But nearly one in four owners of single-family homes (23 percent) were "underwater" during the second quarter — owing more on their mortgage than their homes were worth — and foreclosure resales made up 22 percent of all home sales in June, Zillow said.

"While the abundance of affordable foreclosure properties is a boon for many first-time homebuyers, I don’t believe we’ll see significant recovery until demand-side fundamentals improve, and more move-up and move-across buyers re-enter the market," said Stan Humphries, Zillow chief economist, in a press release.

About 29 percent of homes that changed hands in June sold for less than their owner originally paid, Zillow said. The Zillow Home Value Index showed prices falling by 0.9 percent from May to June, and 2.7 percent from the first quarter to the second.

Looking back a year, the index showed home values falling by 12.1 percent during the second quarter. At $186,500, the median home value was down 22.3 percent from its peak.

The annual decline registered in the second quarter was smaller than the 12.4 percent hit home valuations took in the first three months of the year, marking the first decrease in the rate of annual decline since prices started falling in the fall of 2007, Zillow said.

The Zillow Home Value Index includes the value of all single-family residences, condominiums and cooperatives in a given area, whether they were sold or not.

Some areas may be closer to hitting bottom than others, Zillow said, noting that 18 of 142 metropolitan statistical areas (MSAs) seeing price declines have posted at least three consecutive quarters of smaller year-over-year home-value declines. Nine of those markets were in California: Los Angeles, San Diego, Stockton, Oxnard, Santa Rosa, Modesto, Vallejo, Yuba City and Napa. …CONTINUED

The five best-performing markets among the 161 MSAs tracked were Fayettville, N.C. (up 13.4 percent year-over-year in June), Oklahoma City, Okla. (up 4.8 percent), Binghamton, N.Y. (up 4.4 percent), Burlington, N.C. (up 4.4 percent), and Gainesville, Ga. (up 4.2 percent).

Four of the five worst-performing markets were in California: Merced (down 40.2 percent from a year ago in June), El Centro (-37.6 percent), Madera (-33.8 percent) and Modesto (-31 percent). Las Vegas, where the index showed prices down 34.6 percent from a year ago in June, also made the list.

Pending sales of existing homes rose 3.6 percent from May to June, marking five consecutive months of gains for the first time since July 2003, according to another index maintained by the National Association of Realtors (see story).

The news was "yet another piece of evidence suggesting that an economic recovery is underway," John Lonski, an economist with Moodys Investors Service, said in an online commentary.

Sequential increases in May of home-price indexes maintained by the Federal Housing Finance Agency and Standard & Poor’s/Case-Shiller "may not have been anomalies," Lonski wrote. "The establishment of a rising trend for home sales probably would bring a decisive end to home-price deflation within six months."

Many observers believe that banks have large "shadow inventories" of foreclosed properties they are reluctant to sell at steep discounts, and that many would-be sellers are also waiting for a bottom to form.

Zillow’s second-quarter Homeowner Confidence Survey found 29 percent of homeowners would be at least somewhat likely to put their home on the market if they see signs of a turnaround, "signaling an abundance of potential shadow inventory waiting in the wings," the company said.


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