Below is an article from the San Jose Mercury News published in the Contra Costa Times.
By Sue McAllister
As home values in some parts of the East Bay began inching up last year, local homeowners may have thought the housing market collapse was behind them. But another decline in values — a "double dip" — could be on the way.
Alameda County home values rose just 0.06 percent in the fourth quarter of 2009 from the third quarter, and were flat in December compared with the previous month, after eight months of stronger appreciation, according to a report from Zillow.com, a Seattle company that calculates the values of millions of U.S. homes, regardless of whether they have recently been sold. The median estimated value of Alameda County homes at the end of the fourth quarter was $427,484, Zillow reported.
In Contra Costa County, home values posted a 0.09 percent increase in the fourth quarter, to a median estimated value of $338,652. That figure was flat in December from November.
It's that slowdown in appreciation that led Zillow to put Alameda and Contra Costa counties on a sort of watch list for a "double dip" in home prices for early 2010, said Stan Humphries, the company's chief economist.
"We see high levels of foreclosures still, and some worrisome demand-side factors as well," he said. The factors include expiration in April of the federal tax credit for homebuyers, likely hikes in mortgage interest rates as the Federal Reserve ends a program to purchase mortgage-backed securities and a tightening of lending criteria by the Federal Housing Administration.
"We are seeing weakening trends in home values, which we think are likely to go negative for the next few months," Humphries said. But he added that the predicted second decline in home prices will not be as severe as the one that pummeled Bay Area home prices for the past two years.
The specter of a double dip in home prices has been raised by housing market observers, who note that impending foreclosures and high unemployment put housing prices at risk of further declines, despite the federal government's efforts to stabilize them.
Some East Bay real estate professionals questioned Zillow's forecast.
"In the regions closest to San Francisco with the better school districts, I don't see a decline in price, I only see continued demand for these places," said Linnette Edwards of Prudential California Realty in Piedmont.
Steve Dhillon, an agent with Realty Experts in Fremont, said he sees abundant demand from first-time buyers and not many properties for sale so far this year. Two weeks ago he listed a remodeled 1,700-square-foot Union City house for $588,000, and the sellers received six offers, choosing one for about $600,000, he said.
Alameda County has about 1,900 houses for sale this week, about 40 percent fewer than a year ago. In Contra Costa, about 2,250 houses are on the market, down about 48 percent from a year ago, according to Altos Research.
Humphries said Zillow defines "double dip" as when home prices decline for at least five months at an annualized rate of at least 1 percent, followed by five or more months of appreciation of at least 1 percent, followed by five or more months of depreciation, with only a year's time separating the depreciation "troughs."
Other California metro areas on Zillow's double-dip candidate list include Santa Cruz, San Diego and Ventura. Atlanta and Denver were among the large U.S. cities on the list. Humphries said further home price depreciation makes sense in the face of high unemployment and the likelihood of continued foreclosures nationwide.
"What we're seeing is the natural evolution of the market correction, which we saw a little bit of relief from in 2009, because of substantial policy support" from the federal government, he said. "Things still need to be played out."
Once Bay Area home values do bottom out, he expects recovery to be gradual. Zillow's estimates of property values rely on public records data of comparable sales, and the company's proprietary formulas.
In a hopeful sign for the region, Zillow said the portion of homeowners who are "underwater" on their mortgages — who owe more than their homes' market values — dropped in Santa Clara, Alameda and Contra Costa counties in the fourth quarter from the third quarter.
In Santa Clara County, the company estimated 14.6 percent of homeowners had negative equity, down from 16.6 percent. Alameda County's negative equity figures dropped to 21.9 percent from 24.2 percent, and in Contra Costa County, 38.9 percent of homeowners were underwater, down from 43.2 percent.
