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US home prices dropped 4.1 percent in 2010

U.S. home prices fell 4.1 percent in 2010, according to a report from Clear Capital. The provider of data services for the real estate industry also said that home prices dropped in 70 percent of major markets, pressured by high unemployment and REO saturation above 22 percent during the year. REO saturation is the proportion of homes that are sold as bank-owned.

Is there a recovery?

Dr. Alex Villacorta, senior statistician with Clear Capital, said in a statement:

Some housing markets are well on their way to recovery, while others are experiencing a renewed downturn reminiscent of the housing crash only two years ago. Understanding which path a given market is likely to follow is dependent on several key factors, but the two clear drivers are local unemployment rates and the prevalence of distressed homes.

Housing markets change

Only eight major markets experienced double digit declines during the year, indicating that rapid and severe declines are subsiding. Those markets were Dayton, Ohio; Columbus, Ohio; Milwaukee, Wis.; Tucson, Ariz.; New Haven, Conn.; Jacksonville, Fla.; Virginia Beach, Va.; and Richmond, Va.

Of the 15 major markets that had price gains, six were in California, a state that has been hit hard by the housing crisis and had a lot of homeowners default on mortgage loans. Those markets were Riverside, San Diego, Los Angeles, San Jose, San Francisco, and Fresno.

Home mortgage applications

Some housing markets were lifted by home buyers taking advantage of a government tax credit. The tax credit encouraged many people to apply for mortgages while interest rates were at or near historical lows. Without the tax credit some homeowners may not have enough money saved up for a mortgage loan down payment and may put off buying a house.

Markets expected to continue struggling

The clear Capital data indicates that housing markets in the West may continue to struggle this year, and that Arizona may post double digit declines. Major Arizona cities have unemployment below the national average, but REO saturation in Tucson is more than 12 percentage points above the national level and more than 19 percentage points for Phoenix.

California markets that improved this year and posted gains may not experience that again this year. Also, housing markets in the South also are expected to struggle, with four of the 10 worst declining markets being in that region.

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