For the last 12 years, it is only in the last quarter of 2008 that metropolitan home values in San Jose, California have dropped sharply, thanks to the economic recession and a deteriorating stock market. Almost one in every five homeowners in the area is submerged ?underwater? with mortgage dues that are more than the value of their homes, and will most likely give in to foreclosing their homes.

According to Zillow.com, a housing valuation company, San Jose home values dropped 17.2 percent in the last three months of the previous year to an approximated mean value of $587,360. This was the most severe decline since the year 1996, and the most depleted median value ever since the first four months of 2004.

All homes in the San Jose metropolitan area including the Santa Clara County have lost a net value of $58.8 billion in 2008. Majority of that loss which comprised $29 billion happened in the last three months when the brutality of the economic recession was becoming more evident with almost every passing week.

Moreover, the housing valuation company states that 44 percent of all homes bought last year in the county were sold at a deficit to the homeowner. That amount consists of both short sale transactions and foreclosures. The former happens when owners sell their homes for a smaller price compared to their debt to their mortgage lenders.

On the brighter side of things, there is a glimmer of hope for both the local and state economies as some people have recently been purchasing foreclosure properties with low prices. A report last week by the California Association of Realtors indicated that home sales increased by 85 percent in California last December 2008, compared with December of 2007. The trade group also added that sales were also up by 12 percent in the Santa Clara County. People can now afford to buy foreclosure properties thanks to the low purchase costs and low interest rates.

Still, several Santa Clara County areas had alarming home value declines, but only slight in other areas. For example, the median value of homes in Gilroy fell to 38 percent from the last quarter in 2007. But in the 94924 ZIP code of Los Altos, home values just fell by 5.4 percent. Moreover, the 94301 ZIP code of Palo Alto was the only area in the county to have a higher median value of 5.2 percent.

The prevalent drop in values has left a 19.4 percent negative equity to all homeowners in the last three months. According to Zillow.com, this means that the remainder of their mortgage loans has surpassed their home's market value.

But results still vary from area to area. For example, only an estimated 3 percent of homeowners hold a negative equity in Cupertino. In Campbell however, the number was 16 percent. But when it came to the East Side 95111 ZIP code of San Jose which was badly hit by foreclosures, homeowners who were ?underwater? because of their loans comprised 38 percent.

The last three months were especially difficult on home values in most cities all over the nation particularly the ex-boom towns in Arizona, California and Nevada. Still, according to the Zillow.com's Vice-President of Data and Analytics Stan Humphries, Portland, Oregon and Seattle managed worse for the first time compared to the national trend last quarter.