To find the cities where home values fell the most, we began with the 315 Metropolitan Statistical Areas that Local Market Monitors tracks. Metropolitan Statistical Areas are defined by the U.S. Office of Management of Budget and used by the federal government to collect statistics. For each of those metros, LMM identified the quarter during which home values peaked, and measured the percentage change as of the third quarter of 2009.
To determine home values, LMM used the Federal Housing Finance Agency's Home Price Index. This index number is taken from data on all mortgages bought or backed by Fannie Mae ( FNM - news - people ) and Freddie Mac ( FRE - news - people ). That excludes non-conventional mortgages, such as federally insured loans, or non-conforming mortgages--"jumbo loans" that command above around $400,000 in most markets, and around $700,000 in high-cost markets. It excludes condominiums, co-ops and bank purchases of foreclosed homes.
Because the index concerns mortgages for the most common swath of existing homes--single-family residences financed with conventional mortgages--but excludes the most volatile segments of the housing market, LMM treats it as the most accurate way to determine actual home values.
To arrive at peak prices, LMM used mandatory mortgage information reported to the Federal Financial Institutions Examination Council, which calculates actual median home prices each year. ba<x>sed on the FFIEC reported price in 2004 compared with the FHFA index number for the same year, LMM adjusts home prices each quarter relative to the current index number. In other words, LMM's home prices are an approximation ba<x>sed on the FHFA index number.
The index number itself is what we used to determine where homes had lost the most value. Since the most value was lost from states in California, Nevada, Arizona and Florida, we pinpointed the 10 metro areas that had dropped most in value from each of the census-defined United states regions--Northeast, South, Midwest and West--to get a more geographically representative set of cities.