Home prices showed the sharpest decline since 2008 in the first quarter, with negative equity at 28.4%, says the most recent data from online real estate hub Zillow.

U.S. home prices fell 3% in the first quarter, posting the greatest quarter-over-quarter decline since the fourth quarter of 2008, according to Zillow Real Estate Market Reports. From their peak in June 2006, home prices have fallen 29.5%. The bottom of the home market is unlikely to appear in 2011, says Zillow, based on the recent data.

Additionally, the data finds a negative equity level at 28.4%, up from 27% in the fourth quarter of 2010. The increase is attributed to accelerating home value declines.

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

Foreclosures rose during the first quarter as banks unfroze moratoriums and allowed foreclosures to resume, Zillow said. Foreclosures had previously fallen in late 2010 due to a surge of moratoriums. In March, one out of every 1,000 homes in the country was lost to foreclosure.

Regionally, very few markets saw stable or rising home prices and 97% of the 132 markets Zillow covers saw prices fall. Only the Fort Myers, Fla., Champaign-Urbana, Ill. and Honolulu, Hawaii metropolitan statistical areas saw quarter-over-quarter increases, while the Sarasota, Fla. region remained flat.

Find out more about the Zillow Home Value Index.

Written by Elizabeth Ecker