Home values fall for two consecutive months

National home values fell for the second month in a row in October, to a Zillow Home Value Index of $162,800, the first consecutive monthly declines since October 2011, according to the October Zillow Real Estate Market Reports. Home values nationwide rose 5.2 percent year-over-year, a much slower pace than annual appreciation rates in the seven percent range experienced over the summer, further proof that the market has begun to cool off after months of unsustainable appreciation rates.

Half of the 388 metros covered experienced monthly home value depreciation in October from September. Among the 30 largest metro areas covered by Zillow, 10 exhibited monthly depreciation in October, and two more were flat.

For the 12-month period from October 2013 to October 2014, national home values are expected to rise just 2.7 percent, roughly half the current pace, according to the Zillow Home Value Forecast. Seven of the top 30 metros covered by Zillow are expected to see home values fall over the next year, with the biggest declines in St. Louis (-1.5 percent), Philadelphia (-0.9 percent) and New York (-0.7 percent).

"The months-long period of annual home value appreciation rates in the 6 and 7 percent range was great while it lasted, but we knew it would not continue indefinitely. The slowdown we've seen these past few months was expected, and is largely welcome news for a market still struggling to find its natural balance," said Zillow Chief Economist Dr. Stan Humphries.  "The conditions that led to the robust appreciation experienced earlier this year, including historically low mortgage interest rates, high affordability, low inventory and high demand, are waning. In their place, we're beginning to see more inventory and rising mortgage rates, which will lead to further normalization in the market going forward."

Despite falling monthly appreciation, home values in most areas continue to grow year-over-year. All 30 of the largest metro areas experienced annual gains in September, with the largest coming in Las Vegas (33.2 percent); Riverside, Calif. (30.4 percent); and Sacramento, Calif. (30.4 percent).

National rents rose in October from September, up 0.2 percent to a Zillow Rent Index of $1,300. Year-over-year, national rents were up 2.3 percent in October.

The number of completed foreclosures in October fell to 5.44 homes foreclosed out of every 10,000 homes nationwide, down from 5.5 homes in September. Foreclosure re-sales represented 8.7 percent of homes sold in the U.S. in October, up 0.5 percentage points from September but down 2.1 percentage points from October 2012.

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