These types of stories drive me crazy – sellers will skim the headlines and get more over-confident:

Aug. 9 (Bloomberg) — The percentage of U.S. homeowners who owe more than their properties are worth declined in the second quarter as tax credits boosted prices in California and foreclosures surged, real estate data provider said.

The Seattle-based company found that 21.5 percent of homeowners were underwater on their mortgages, down from 23.3 percent in the first quarter and 23 percent a year earlier, according to a report today.

The decline came as property prices in California were bolstered by state and federal benefits for homebuyers, Zillow said. Prices climbed from a year earlier in 28 percent of the markets tracked in California, the most populous state. They gained 5.5 percent in the Los Angeles area, 5.9 percent in San Francisco, and 7.3 percent in San Diego.

“The double tax credits for some California homebuyers have certainly stimulated housing demand there and are partly responsible for the rapid — and likely unsustainable — rates of appreciation in many markets across the state,” Stan Humphries, chief economist at Zillow, said in a statement.

Homebuyers seeking the federal benefit had to sign contracts by April 30 to qualify for a tax credit of as much as $8,000, and have until Sept. 30 to complete their purchases. In California, buyers could qualify for a credit of as much as $10,000 under a program that began May 1.

U.S. foreclosures reached a high in June, with more than one of every 1,000 homes taken over by lenders, Zillow said. The number of properties receiving a notice of default, auction or bank seizure climbed in three-quarters of U.S. metropolitan areas in the first half of 2010, Irvine, California-based RealtyTrac Inc. said July 29.

The foreclosures contributed to the drop in the number of homeowners with negative equity, as some underwater properties were seized by banks, Humphries said in an interview.

Across the U.S., home values fell 3.2 percent from a year earlier to a median of $182,500, according to Zillow. They declined 0.6 percent from the first quarter.

About 26 percent of homes sold nationwide in June went for less than the seller originally paid, Zillow said. The closely held company uses public records data going back to 1996. Zillow’s mortgage figures come from information filed with individual counties across the U.S.

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