Property values rose in only three of the 132 regions tracked by Zillow: Fort Myers, Fla., where they gained 2.4%; Champaign-Urbana, Ill., up 0.8%; and Honolulu, up 0.3%. Fort Myers prices increased after falling more than 60% from their 2006 peak because they "over-corrected," Humphries said.

The first quarter's U.S. home price decline was the steepest since the fourth quarter of 2008, when prices fell 3.9%, according to Zillow data. Values dropped almost 13% over the course of that year.

"It's not going to be as bad as 2008," Humphries said. "But it's going to be worse than we thought it was going to be."

'Stealing Demand'

Prices were propped up in 2009 and early 2010 by federal stimulus programs, such as tax credits worth up to $8,000 for first-time homebuyers, Humphries said. That program "was stealing demand from the future," weakening shoppers' appetites now even as housing affordability is at its three-decade high, he said.

"In the past, people felt more bullish in a post-recession recovery," he said. "They'd go out and spend more on homes and that would ignite hiring in construction and the mortgage industry. And they'd start to get the flywheel moving more quickly. Unfortunately, now, that flywheel is broken."

 

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