Home Values Lose $1.7 Trillion in 2010, Prices Still Falling

Remember that brief period earlier this year when home prices appeared to be stabilizing? It didn't last. After a losing $680 billion of value in the first half of the year, the housing market is expected to lose another trillion dollars in the second half, according to online real estate marketplace Zillow.com. A separate report from real estate consulting firm Clear Capital confirms that home prices continue to fall, down 5.8% in the last quarter.

Let's start with the decline in the housing market's value. How much is $1.7 trillion, really? The number is so gigantic that it's hard to put into perspective, but Zillow uses the war in Iraq as a measuring stick. It had cost around $750 billion through September. So just this year, the housing market has lost the equivalent of what it would cost for around two-and-a-half wars in Iraq.

It also helps to know the baseline. Zillow says that the U.S. housing market's value will be around $22.7 trillion by the end of December. In other words, the market has lost around 7% of its value this year.

Zillow also provides an estimate of the total value lost since the housing bubble popped. Since June 2006, $9 trillion has been lost. Put another way, the market is down 28% from its peak. That's an incredible amount of wealth to have disappeared over a relatively short time.

And this explains part of the reason why Americans haven't been particularly eager to spend much money -- they have lost a great deal of their wealth. This wasn't all lost by homeowners, as some of the equity was held by investors or banks. But unemployment isn't the only reason why people aren't spending as aggressively as they did prior to 2007: they're also trying to rebuild their wealth by saving more money.

Clear Capital says that quarterly home prices have been declining again for three straight months. The firm doesn't add much optimism about home prices rising in the near-term either:

Price trends from recent years indicate, however, winter price lows hang around through March, making it unlikely that there will be an end to these declines that started in August, until the second quarter of 2011 at the earliest.

Yet banks might also hit the market with a deluge of foreclosures in the early part of 2011, which they had been holding back as they worked to fix their procedures. If that happens, then prices aren't likely to recover then either.

The only real hope for home prices in 2011 is if unemployment begins to decline and Americans feel more comfortable purchasing a home. Demand will have to be fairly strong to keep up with the foreclosed properties that will continue to hit the market throughout the year. If buying remains weak, then prices will continue to fall.

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Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.

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