According to real estate valuation company Zillow.com, during the fourth quarter of 2008, nearly 20% of homeowners in the San Jose metro are upside down with “negative equity.” Property values range significantly in Northern California neighborhoods. In Gilroy, for example, the median home value dropped 38%. Los Altos declined only 5.4%. But, in Palo Alto, the only city to post an increase, median home values jumped about 5%. This one of the major reasons that California loan modification plans have become so popular with local residents.

Overall the value of homes in the San Jose metropolitan area fell just over 17% in the final three months of 2008, compared with the same period in 2007. This is the steepest drop in more than a decade. Because of the economic downturn the effects of growing insecurity really started to show during the last October-to-December period.

When people are worried about losing their jobs and their stock market investments crumbling, fewer will buy homes despite low mortgage rates and falling prices.  It is a tough time for homeowners with these drops in values, but they will eventually rise again.  In the meantime, this is a great opportunity for first-time homebuyers previously priced out of the market. Low mortgage interest rates along with lower home prices, especially foreclosure properties, are encouraging more buyers.