Slide In US House Prices Hits Record Pace

Source : The Business Times, January 1, 2009

Record 18% fall in October in key cities was sharper than forecast

(NEW YORK) Home prices in 20 major US cities declined at the fastest rate on record, depressed by mounting foreclosures and slumping sales.

Troubled times: The 20-city index is down 23 per cent from its 2006 peak; 14 of the 20 metropolitan areas showed record declines in the year ended in October

The S&P/Case-Shiller index declined 18 per cent in the 12 months to October, more than forecast, after dropping 17.4 per cent in the year through September. The gauge has fallen every month since January 2007. Year-on-year records began in 2001.

The financial market meltdown that has reverberated around the globe has prompted banks to curb lending, signalling that the housing slump would persist for a fourth year in 2009. Falling property values have eroded household wealth, causing consumers to pare spending and deepening what is projected to be the longest recession in the post-war period.

'We're seeing a shift to a housing market that is driven by a poor economy rather than a housing market that's driven by oversupply,' said Guy Lebas, chief economist at Janney Montgomery Scott LLC in Philadelphia. 'The credit problems that hit in October exacerbated the speed of it.'

Economists forecast that the 20-city index would fall 17.9 per cent from a year earlier, according to the median of 21 estimates in a Bloomberg News survey. Projections ranged from declines of 17 per cent to 18.4 per cent.

Compared with a year earlier, all areas in the 20-city survey showed a decrease in prices in October, led by a 33 per cent drop in Phoenix, a 32 per cent decline in Las Vegas and a 31 per cent drop in San Francisco.

Dallas posted the smallest 12-month decline, at 3 per cent, followed by a 4.4 per cent drop for Charlotte and a 5.2 per cent fall in Denver. New York City posted a 7.5 per cent drop.

'The bear market continues,' David Blitzer, chairman of the index committee at S&P, said in a statement. The declines in Atlanta, Seattle and Portland surpassed 10 per cent for the first time, he said.

Robert Shiller, chief economist at MacroMarkets LLC and a professor at Yale University, and Karl Case, an economics professor at Wellesley College, created the home-price index based on research from the 1980s.

The 20-city index is down 23 per cent from its 2006 peak. Fourteen of the 20 metropolitan areas showed record declines in the year ended in October.

Home prices decreased 2.2 per cent in October from the prior month after declining 1.8 per cent in September, the report showed. The figures aren't adjusted for seasonal effects so economists prefer to focus on year-over-year changes instead of month-to-month.

Six cities, including Atlanta, Charlotte, Detroit, Minneapolis, Tampa and Washington, had the largest one- month drop on record.

Other housing reports this month have shown property values are deteriorating even faster as foreclosures climb. Home resales, which account for about 90 per cent of the market, dropped in November and median-home prices fell 13 per cent from a year earlier, the most since records began in 1968, the National Association of Realtors said last week. Foreclosures and so-called short sales, or purchases at less than the value of the outstanding mortgage, accounted for 45 per cent of last month's home purchases, the agents' group also said.

Case, the co-founder of the pricing index, said on Tuesday that the high concentration of foreclosure sales in Florida, California, Nevada and Arizona led the drop in the overall price index.

'Auction sales are a big deal and they are concentrated, 54 per cent, in four states,' said Case in an interview with Bloomberg Television from Wellesley College, in Wellesley, Massachusetts. 'They are down a lot. They are driving the aggregate index down.'

The share of mortgages delinquent by 30 days or more and those already in foreclosure rose to all-time highs in the third quarter, the Mortgage Bankers Association said on Dec 5.

Declines in home construction have subtracted from economic growth since the first quarter of 2006. Weak housing construction is likely to remain a drag on the economy until sales and prices improve. -- Bloomberg