Home values showed the sharpest quarterly declines since 2008, falling 3% in the first quarter this year, according to Zillow’s real estate market report.

Zillow said national prices were down 8.2% year-over-year to $169,000. Since peaking in June 2006, home values have fallen 29.5%.

Out of the 132 markets covered by Zillow, 97% saw home value decreases during the first quarter. Gainesville, Fla., had the largest quarterly price deficits, down 10.4%, followed by Ann Arbor, Mich., at 8.2%.

Of the top 25 MSAs covered by Zillow, the biggest difference in quarterly prices was seen in Detroit, down 5.2% to $70,600. Minneapolis-St. Paul and Chicago were both down 4.8%, with home prices averaging at $159,000 and $167,900, respectively.

Only Fort Myers, Fla., Champaign-Urbana, Ill., and Honolulu experienced price increases, with home values rising 2.4%, 0.8% and 0.3%, respectively. Home values in Sarasota, Fla., remained flat during the same time period.

“Home value declines are currently equal to those we experienced during the darkest days of the housing recession,” said Stan Humphries, chief economist at Zillow. “With accelerating declines in the first quarter, it is unreasonable to expect home values to return to stability by the end of 2011.”

Zillow also reported that negative equity reached a record high in which 28.4% of single-family homeowners with mortgages are underwater. This is a 1.4% increase from the 4Q 2010.

As banks unfroze moratoriums and allowed foreclosures to resume, there were more foreclosures throughout the country in the first quarter. In March, one out of every 1,000 homes was foreclosed.

“We did expect substantial payback from the homebuyer tax credits, which buoyed the housing market last year, but underlying demand post-tax credit, as well as rising foreclosures and high negative equity rates, make it almost certain that we won’t see a bottom in home values until 2012 or later,” Humphries said.

Contrary to previous forecasts last year, appreciation is expected to hit 1-3% next year and 3-4% in 2013.  We’re still feeling the weight of the foreclosures and bank-owned properties.  Until this slows, it creates a drag on prices.

Another “silent killer” weighing in on all of this is the difficulty of obtaining a mortgage these days.  Credit standards have been ratcheted so tightly that it too has choked the purchase market, although most don’t realize this is going on behind the scenes.

Ever wonder why you can get a better deal going through a mortgage broker than you can if you go directly to a lender?  After all, the mortgage broker just turns around and sells it to a major national lender anyway?  So logic dictates that cutting out the “middle man” should yield you a better deal, right?  Not in the case of mortgages.

Believe it or not, 65% of all mortgages in America are originated by mortgage brokers.  Because many of those brokerages are small businesses, they can keep their overhead low and effectively lower their margins.  This means lower rates and closing costs for consumers.  Although lenders quietly solicit mortgage business, it costs them much more to originate a loan as they have to maintain a larger staff to do so.  Therefore, they rely on thousands of mortgage brokers who in turn have “mortgage sales people” to find the business.  The lender pays the broker a commission for finding, processing, and delivering the loan to them.

But not all mortgage brokers were created equal.  You still want to shop for the best deal as some charge unnecessary origination fees for their services.  But don’t be fooled, the lender is paying them for their services so you shouldn’t have to.

I am frequently asked about bi-weekly mortgage programs and whether or not they are a good choice.  As my readers know, I always like to give the short and sweet answer first which is NO, they are not.  But for those looking for an explanation I offer an in depth look at why they aren’t a good deal.  Yes, they pay off a loan quicker and accelerate equity build up.  But they often come with a price that is unnecessary as you can accomplish the same thing on your own using simple math.

A bi-weekly mortgage is set up so that your mortgage payment is automatically debited out of your checking account every two weeks, thus making 26 payments a year.  This is actually just one additional payment per year (26 payments divided by 2 equals 13 payments a year instead of the normal 12).  Of the bi-weekly mortgages we offer, most come at a higher rate, typically .25% higher.  Some even have set-up fees and ongoing monthly “administrative” fees.

Using a loan amount of $150,000 at 6% over 30 years set up as a bi-weekly loan, it took off 5.6 years paying the loan off in 24.4 years.  It also saved $32,855 in interest versus a traditional 30 year loan.  This assumes you stay in this mortgage for a long time to reap the benefits as well as recoup any fees associated with the loan.

Now what happens when you just make one extra payment a year on your own?  Using the same numbers as above, $150,000 at 6% over 30 years is $899 P&I per month so that would be an extra $899 a year.  But what if you just don’t have an extra $899 left over at the end of the year, especially around the holidays?  Well, the good news is you don’t have to.  The trick is, divide the monthly P&I payment by 12 and add that to your monthly payment each month (using round numbers, $899 divided by 12 equals $75 so the total monthly payment would be $974)  This scenario takes off 5.4 years and pays the loan off in 24.6 years, slightly longer than the bi-weekly.  But the real benefit is that you save $36,853 which is $3,998 more than the bi-weekly due to the way the loan is compounded.

So don’t be fooled by the touted advantages of the bi-weekly loan.  Use simple elementary level math to do the work for you!