SEATTLE, Oct. 18, 2013 /PRNewswire/ -- A summer-long cool-down in the pace of home value appreciation is helping a handful of markets step back from the edge of bubble territory, according to the third quarter Zillow® Real Estate Market Reportsⁱ. The U.S. Zillow Home Value Indexⁱⁱ stood at $163,000 as of the end of the third quarter, up 6.4 percent year-over-year and 1.2 percent from the end of the second quarter, but unchanged from August. The quarterly pace of appreciation was roughly half that experienced in the second quarter.

For months, a handful of already expensive metro areas that experienced relatively modest declines during the crash but very robust gains during the recovery, particularly in California, have flirted with being in a bubble. These markets risked potentially becoming unaffordable for typical buyers as home values grew precipitously, mortgage interest rates rose from record lows and income growth failed to keep pace. In order for homes to remain affordable and to avoid a market bubble, the pace of home value appreciation in these markets needed to slow down or even fall.

As of the end of the third quarter, the national pace of monthly home value appreciation has fallen in each of the past three months, and turned negative in San Diego (-1.2 percent), Los Angeles (-1.1 percent) and San Francisco (-0.1 percent) in September, after reaching into the 3 percent range in all three metros just a few months ago. Among the top 30 largest metro areas covered by Zillow, half showed monthly depreciation at the end of the third quarter. As recently as July, all of the top 30 metro areas showed positive monthly appreciation, with none exhibiting a monthly pace slower than 1 percent month-over-month.

"Far from being a negative sign, we're relieved to see more noticeable signs of cooling in the market. If home values continued to rise as they have, relatively unchecked, we would almost certainly be headed into another bubble cycle, and nobody wants that," said Zillow Chief Economist Dr. Stan Humphries. "This is more proof that the market recovery is entering a new phase, transitioning away from the bounce off the bottom we've been experiencing and finding a more sustainable level. This moderation should help consumers feel more at ease in their decisions to buy and sell, and will help keep the market balanced."

Despite falling monthly appreciation, home values in most areas continue to grow year-over-year. All 30 of the largest metro areas experienced annual gains in September, with the largest coming in Sacramento, Calif. (34.1 percent); Las Vegas (33.3 percent); and Riverside, Calif. (31.8 percent). Annual appreciation is expected to slow markedly over the next 12 months as moderation spreads, to an annual pace of 3.8 percent nationwide by September 2014, according to the Zillow Home Value Forecastⁱⁱⁱ.

National rents rose by 1.3 percent in the third quarter compared with the second quarter, to a Zillow Rent Index^iv of $1,298. Year-over-year, rents nationwide rose 2 percent. A total of 5.12 out of every 10,000 homes nationwide were foreclosed upon as of the end of the third quarter, down 0.2 homes per 10,000 from the second quarter and down 1.4 homes per 10,000 year-over-year.

About Zillow:
Zillow, Inc. (NASDAQ: Z) operates the largest home-related marketplaces on mobile and the Web, with a complementary portfolio of brands and products that help people find vital information about homes, and connect with the best local professionals. In addition, Zillow operates an industry-leading economics and analytics bureau led by Zillow's Chief Economist Dr. Stan Humphries. Dr. Humphries and his team of economists and data analysts produce extensive housing data and research covering more than 350 markets at Zillow Real Estate Research. Zillow also sponsors the quarterly Zillow Home Price Expectations Survey, which asks more than 100 leading economists, real estate experts and investment and market strategists to predict the path of the Zillow Home Value Index over the next five years. The Zillow, Inc. portfolio includes Zillow.com®, Zillow Mobile, Zillow Mortgage Marketplace, Zillow Rentals, Zillow Digs™, Postlets®, Diverse Solutions®, Agentfolio™, Mortech®, HotPads™ and StreetEasy®. The company is headquartered in Seattle.

Zillow.com, Zillow, Postlets, Mortech, Diverse Solutions and StreetEasy are registered trademarks of Zillow, Inc. HotPads, Digs and Agentfolio are trademarks of Zillow, Inc.

ⁱ The Zillow Real Estate Market Reports are a monthly overview of the national and local real estate markets. The reports are compiled by Zillow Real Estate Research. For more information, visit www.zillow.com/research/. The data in Zillow's Real Estate Market Reports is aggregated from public sources by a number of data providers for 931 metropolitan and micropolitan areas dating back to 1996. Mortgage and home loan data is typically recorded in each county and publicly available through a county recorder's office. All current monthly data at the national, state, metro, city, ZIP code and neighborhood level can be accessed at www.zillow.com/local-info/.
ⁱⁱ The Zillow Home Value Index is the median estimated home value for a given geographic area on a given day and includes the value of all single-family residences, condominiums and cooperatives, regardless of whether they sold within a given period. It is expressed in dollars, and seasonally adjusted.
ⁱⁱⁱ The Zillow Home Value Forecast uses data from past home value trends and current market conditions, including leading indicators like home sales, months of housing inventory supply and unemployment, to predict home values over the next 12 months for the nation and for more than 250 markets across the country.
^iv The Zillow Rent Index is the median Rent Zestimate (estimated monthly rental price) for a given geographic area on a given day, and includes the value of all single-family residences, condominiums, cooperatives and apartments in Zillow's database, regardless of whether they are currently listed for rent. It is expressed in dollars.

SOURCE Zillow, Inc.