RealEstateEconomyWatch.com

Homeowners have turned more pessimistic about near-term prospects for home values in their local housing markets than they have been in the past three quarters.  One out of three now believes home values in their local markets have not yet reached a bottom and more than a quarter (28 percent) expect home values in will decrease over the next six months.

Fears of prices decreasing further are up from 20 percent in the first quarter. Thirty percent believe home values in their local market will increase, down from 42 percent in the first quarter, according to the Zillow second quarter Homeowner Confidence Survey.

In fact, home prices, including distressed sales, increased nationally by 1.4 percent in June 2010 compared to June 2009 and increased by 3.7 percent in May 2010 compared to May 2009, according to CoreLogic’s Home Price Index.  The Zillow survey was conducted in late July.

Should prices continue to rise, the Zillow survey found that 5 percent of homeowners say they are very likely to put their homes on the market in the next six months. This pending supply translates into about 3.8 million additional properties in inventory. Some 5.2 million existing homes were sold in of 2009.

“As homeowners have been so inundated recently with news of declining home sales post-tax credit, it’s no surprise that they would become more pessimistic about the future of home values,” said Dr. Stan Humphries, chief economist at Zillow.com®. “Homeowners have become much more responsive to current market conditions than they were just two years ago, when a more typical reaction was denial.

“Given this sentiment, we’re surprised so many homeowners believe their market has already bottomed. Although our Q2 reports indicated signs of stabilization in 30 percent of markets we cover, we’re concerned that this was at least partly due to the homebuyer tax credits. We’re already seeing payback for the credits in the form of declining home sales, and this trend will push up inventory levels and exert downward pressure on home values. Add in the inventory from the millions of sidelined sellers and we’ll take more steps back. Our forecast remains largely unchanged: We’re in for an L-shaped recovery that will likely keep annualized home value appreciation very low for the next three to five years,” Humphries said.