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One third of new owners owe more than house is worth

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Almost one-third of U.S. homeowners who bought in the last five years now owe more on their mortgages than their properties are worth, according to Zillow.com, an Internet provider of home valuations.

Second-quarter home prices fell 9.9 percent from a year earlier, giving 29 percent of owners negative equity, said Zillow, the Seattle-based service that offers values for more than 80 million homes. For those who bought at the 2006 peak of the housing market, 45 percent are now underwater, Zillow said.

Negative equity and declining prices contribute to the foreclosure rate because some homeowners don't have the cash to pay off the mortgage and end up surrendering their homes to the bank that holds the loan, said Stan Humphries, Zillow's vice president of data and analytics.

Almost one-quarter of U.S. homes sold in the past year were for a loss, Zillow said.

The highest percentages of homeowners with negative equity were in California. In Stockton, Modesto, Merced and Vallejo-Fairfield, the number of homeowners whose mortgage debts exceeded the values of their properties topped 90 percent, Zillow said.

Prices fell on a year-over-year basis in 140 out of 165 markets, Zillow said. Pittsburgh, Oklahoma City and Austin, Texas, were among the few markets that saw rising home values.

The 9.9 percent decline in home values was the largest on a year-over-year basis in at least 12 years, Zillow said. The median home price of $206,919 was the lowest since the fourth quarter of 2004, the company said.

"Sellers are starting to adjust their expectations," Zillow's chief financial officer, Spencer Rascoff, said in a Bloomberg TV interview. "More sellers' accepting a loss is actually a sign of optimism. It means that the transactions might start happening. There are so many sales contingent upon the buyer selling their home."

The Zillow Home Value Index is the median valuation 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, the company said. The index at the national and metropolitan area levels is calculated using a weighted average of the median home value for each county, Zillow said.