Home prices posted their worst quarterly performance in over a decade during the first quarter, according to a report released Tuesday morning by real estate information Web site Zillow.com. More than half of those who purchased a home in 2006 now owe more on their mortgage than their home is worth, the company said -- surely ominous news for mortgage execs fretting over the potential for so-called borrower "walk-aways." Home values in the first quarter of 2008 fell 1.6 percent from the fourth quarter and 7.7 percent from the year-ago quarter, marking the most significant year-over-year decline in the past 12 years, Zillow said. The company's own index of median housing values fell to $213,000 during the quarter, the lowest median price estimate recorded by the firm since the second quarter of 2005. Zillow's home value report is based on data from 160 metropolitan statistical areas. With the exception of Dallas, which returned a one percent year-over-year gain, 30 major markets tracked by Zillow declined from a year ago, with the majority falling back to the median values of three to four years ago. For example, first quarter home values in the Boston area were the equivalent to levels last seen in the second quarter of 2003, down 16 percent from the peak, which occurred in the third quarter of 2005. Values in the Los Angeles MSA have declined to 2004 levels, down 19 percent from the market high recorded in the second quarter of 2006. The Detroit area has been hardest hit, retreating to value levels of 1998, down 24 percent from the market peak in the fourth quarter of 2005. Stunning numbers, but perhaps more troublesome is what these sort of price declines in key housing markets mean for millions of borrowers. Of homeowners nationwide who purchased when U.S. home values peaked in 2006, one out of every two (51.6%) now owes more on their mortgage than their home is currently worth, Zillow said. For those who purchased in 2005 and 2007, the situation is only modestly better with nearly 42 percent and 45 percent, respectively, facing negative equity. By comparison, 16 percent of those who purchased in 2004 have negative equity, as do 7 percent of those who purchased in 2003. "While the high rate of negative equity has little consequence to owners staying in their homes, it can be devastating to those who need to sell immediately or refinance to avoid ARM resets," said Dr. Stan Humphries, Zillow's vice president of data and analytics. "The inability to secure refinancing is ultimately contributing to the growing rates of foreclosure in many parts of the country." For homeowners who purchased in some of the most volatile markets, such as many parts of California and Florida, as well as Phoenix and Las Vegas, rates of negative equity can be twice the national median and, in some cases, as high as 95 percent. For example, in the first quarter, Zillow said that Las Vegas home values fell 25 percent year-over-year and nine out of 10 (89.9%) homeowners who purchased in 2006, when the median down payment was 2 percent, now owe more than their home is worth. Despite the incredible price drops in many key markets, Zillow also said Tuesday that nearly 3 in 4 borrowers believe their home has increased in value over the past 12 months -- yes, really -- which means that many homeowners clearly have not yet come to terms with market reality.