U.S. home prices fell 2.6 percent from the third quarter of 2010 to the fourth, the biggest drop in nearly two years, according to a report by property portal Zillow.

The Zillow Home Value Index, which is not seasonally adjusted, fell 5.9 percent on a year-over-year basis, to $175,200 — 27 percent below a June 2006 peak.

The accelerated decline in home prices after the expiration of the federal homebuyer tax credits in mid-2010 forced a record percentage of those selling homes in December — 34.1 percent — to sell at a loss.

Zillow estimated that 27 percent of homeowners with mortgages were underwater, owing more than their house was worth, up from 23.2 percent in the previous quarter.

The good news is that the declines "mean we’re getting closer to the bottom," said Zillow Chief Economist Stan Humphries in a statement.

"The housing recession is likely in its death throes, and we expect to see sales pick up in early 2011," Humphries said. "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."

The Wall Street Journal this week cited Zillow research in a story noting the increase in cash buyers in markets around the U.S., including those hard hit by foreclosures, such as Miami-Fort Lauderdale and Phoenix.

Zillow Home Value Index: Q4

Market Median price Change from Q3 Negative equity
United States $175,200 -2.6% 27.0%
New York $351,900 -2.4% 15.0%
Los Angeles $399,000 -3.3% 20.2%
Chicago $175,100 -6.5% 38.6%
Dallas $125,300 -4.1% n/a
Philadelphia $191,000 -4.3% 19.6%
Miami-Fort Lauderdale $139,100 -3.3% 42.8%
Washington, D.C. $309,100 -2.5% 26.0%
Atlanta $128,100 -4.3% 54.0%
Detroit $73,200 -7.5% 33.3%
Boston $314,200 -3.2% 13.9%
San Francisco $485,700 -4.1% 22.6%
Phoenix $129,300 -2.5% 69.9%
Riverside, Calif. $190,000 -1.3% 50.1%
Seattle $262,100 -4.3% 34.3%
Minneapolis $166,300 -5.8% 42.3%
San Diego $353,700 -3.4% 21.8%
St. Louis $130,400 -6.1% 33.9%
Tampa $111,900 -3.0% 48.4%
Baltimore $223,800 -3.2% 24.0%
Denver $198,100 -3.5% 40.7%
Pittsburgh $105,400 -2.1% 9.3%
Portland, Ore. $209,900 -5.2% 32.0%
Cleveland $112,800 -4.0% 37.6%
Sacramento $216,200 -4.2% 46.8%
Orlando $118,800 -3.7% 61.7

Source: Zillow Home Value Index.

Although the story concluded that buyers are betting that home prices are at or near bottom, it also acknowledged that some of the boom in cash purchases reflects tight underwriting standards and the difficulty of obtaining a mortgage.

Cash buyers represented more than half of all transactions in the Miami-Fort Lauderdale area in 2010, up from 13 percent in the fourth quarter of 2006, and 45.9 percent in Las Vegas, 44.6 percent in Tampa, and 35.6 percent in Phoenix.

Cash deals were on the wane in Seattle (16 percent) and Washington, D.C. (12.2 percent), the Journal said, citing Zillow research.

Data aggregator Radar Logic Inc. weighed in on the story, warning that the increase in cash buyers reflects "two distinct phenomena: low housing prices, which increase demand for homes, and tight underwriting standards for mortgages, which reduces demand for homes."

Data collected by Radar Logic suggests the supply of homes for sale in Miami and Phoenix exceeds demand and prices remain susceptible to further declines, the company said.

As of November, Radar Logic’s RPX price index was down 9.3 percent in Miami from a year ago, and down 8 percent in Phoenix. Transactions were down 8.9 percent in Miami and 14.5 percent in Phoenix during the same period.

Much of the low-priced housing inventory in these markets is being sold by lenders, Radar Logic said, and price discounts are a function of "extremely high rates of default and foreclosure, which have greatly increased the supply of homes currently in bank inventory or in the pipeline."

The Wall Street Journal recounted the experience of a piano teacher in Stone Mountain, Ga., who closed on a three-bedroom bungalow originally listed for $159,000 in a short-sale transaction for $52,500.

"Given the numerous factors that are currently reducing housing demand, including tight lending standards, slow job creation and high rates of negative equity, the balance of supply and demand continues to tip toward oversupply, and prices continue to fall," Radar Logic said.

Radar Logic’s next RPX Monthly Housing Market Report, to be released Feb. 17, "will explore these trends in detail," the company said.

A home-price index released Tuesday by mortgage data aggregator CoreLogic showed U.S. home prices falling for the fifth month in a row in December, although the rate of depreciation is slowing, the company said.

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