Earlier this year I posted my opinion that we’d see a double-dip in real estate in 2011. Unfortunately, for those who currently own a home and are looking to move, this appears to be the case. On May 8th, 2011, Zillow reported that home values fell 3% in the first quarter of 2011, which is a pace that hasn’t been seen since 2008, when the housing decline was at its worst. Cumulatively, Zillow says that the decline in home values, based on its Home Value Index, is 29.5%, as shown in the figure below.

Zillow Home Value Index

This decline is fairly similar to that established by the Case-Shiller index.

The chart below shows the single-family, 3 bedroom home values for the U.S. as a whole, as well as specifically Florida, California and Hawaii.

US Zillow Home Value Index

I think that Florida’s peak itself is interesting because pre-boom it was below the U.S. average, and now it is back below the U.S. average. However, during the boom, it experience a lot of appreciation in value, while obviously other areas of the U.S. did not. The California values really show the effect of the double-dip here. It seemed at one point that prices had bottomed, but now they are clearly falling again. I think Hawaii is also of particular interest, because it contains Honolulu, which is the only major metro to increase in value during Q1 2011. Hawaii will always have demand as a tourist spot, and I’d imagine this demand to increase as the economy recovers and people are more interested in purchasing vacation homes. Hawaii’s constraints on land keep the supply of homes from keeping up with the demand, which is why we see the values increasing there.

In Zillow’s recent report, it admits that it had previously expected the housing market to bottom by the end of 2011, but it now expects prices to continue to fall into 2012. This is, of course, good news for those of us who would like to purchase a home soon, but aren’t quite ready yet. However, this is bad news for those who own a home and would like to sell. Whether people want to move to a new home, or they simply don’t want to keep pouring money into their original bad investment, there are many people out there looking to get our of their homes. I’d imagine that is only going to increase as prices fall, which will push them even further down. By the end of the first quarter, Zillow reported that 28.4% of single-family homeowners with mortgages were underwater. This means that they owed more on their mortgage than their house was worth.

Overall, Zillow expects value declines of 7-9% for the year. After bottoming in 2012 at the earliest, Zillow then expects a long period of below-average real estate appreciation. Basically, this means that once bottoming, Zillow expects home prices to stay there a while. I would agree with this assessment. I think that we will see this market drop about 20% from where it is now before bottoming out. Once it reaches that point, I don’t think we’ll see any meaningful rebound for a while. I expect prices to hang out on the bottom while a generation that has been scarred by housing mishaps tries to heal.