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) -- Home prices in the United States dropped 3% in the first quarter of 2011, the largest decrease since 2008 when the housing market experienced its worst performance, and negative homeowner equity hit a new high, according to

Zillow's Real Estate Market Report


Median home values fell 8.2% year over year to $169,600 and are expected to fall as much as 9% this year as foreclosures spread and unemployment remains high, Zillow Chief Economist Stan Humphries said. The U.S. unemployment rate rose to 9% in April, up from 8.8% in March, the Department of Labor reported earlier this month.

"With accelerating declines during the first quarter, it is unreasonable to expect home values to return to stability by the end of 2011," Humphries said.

Home prices were down 29.5% from their peak in June 2006. Humphries predicts that prices won't find a floor until 2012.

Negative equity reached a new high in the first quarter, with 28.4% of U.S. homeowners with mortgages underwater, meaning they owed more than their properties were worth. This was up from 27% in the fourth quarter of 2010.

Foreclosures rose in the quarter as banks unfroze moratoriums and allowed foreclosures to resume. In March, one out of every 1,000 homes in the U.S. was lost to foreclosure.

Very few markets saw an increase in home value in the first quarter.

Nearly 97% of the 132 markets covered by Zillow saw home values decline, with only the Fort Myers, Fla., Champaign-Urbana, Ill., and Honolulu, Hawaii metropolitan statistical areas seeing minor quarterly increases. Home values in the Sarasota, Fla., area remained flat.

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At least 85% of homes with mortgages in Las Vegas were underwater, the most of any city tracked by Zillow. Other metropolitan areas in the top five were Reno, Nev., at 73%; Phoenix at 68%; and Modesto, Calif., and Tampa, Fla., both at 60%.

--Written by Theresa McCabe in Boston.

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