Residential real estate prices dropped in January by the most in more than a year, raising the risk that U.S. home sales will keep slowing.
The S&P/Case-Shiller index of property values in 20 cities fell 3.1% from January 2010, the biggest year-over-year decrease since December 2009, researchers said in a report last week. Somewhat surprisingly, Phoenix, Minneapolis and Chicago were three of the cities with the largest drops. (See:
'10 cities with the biggest drop in home prices'.)
Rising foreclosures are swelling the number of houses on the market, which may put additional pressure on prices in coming months. At the same time, a further decline in home values may keep potential buyers on the sidelines as they foresee better deals, hurting construction and consumer spending as owners' equity evaporates.
“Prices will continue to move downward, probably for the rest of the year,” said David Semmens, an economist at Standard Chartered Bank, who correctly forecasted the drop. “They won't turn around until you have consumers feel that housing is genuinely cheap and until they feel a lot more secure in their labor market position.”
Another report showed that consumer confidence dropped in March as Americans grew more concerned about the economic outlook. The Conference Board's sentiment index fell to 63.4 last month, from 72 in February, the research group said.
Home prices fell 0.2% in January from the previous month after adjusting for seasonal variations, following a 0.4% December decrease. Unadjusted prices dropped 1% from December as 19 of 20 cities showed declines.
The Case-Shiller index is based on a three-month average, which means that the January data were influenced by transactions in December and November. Year-over-year comparisons are considered more indicative.
BROAD-BASED DROP
Eighteen of the 20 cities in the index showed a year-over-year decline, led by a 9.1% drop in Phoenix. In January, prices in 11 markets dropped to fresh lows from their peaks in 2006 and 2007, the same as in December.
“The housing market recession is not yet over,” David Blitzer, chairman of the index committee at Standard & Poor's, said in a statement. “At most, we have seen all statistics bounce along their troughs; at worst, the feared double-dip recession may be materializing.”
Washington showed the biggest year-over-year increase, with prices rising 3.6% in January.
Unemployment, at 8.9%, indicates that the number of distressed properties may increase, leading to more price declines as homeowners struggle to make mortgage payments. About 8.2% of loans outstanding were delinquent in the fourth quarter, according to data from the Mortgage Bankers Association.
Foreclosure filings may climb about 20% this year, reaching a peak for the housing crisis, according to RealtyTrac Inc. The data seller said that foreclosures dropped in February to a three-year low as lenders under legal scrutiny struggled to process a backlog of defaults and put new systems in place for home seizures.
A filing influx could add to the surplus of unsold properties and lead to more declines in home values. Other measures released last week showed home prices fell to the lowest levels since the previous expansion's early stages.
The median price of existing homes, which make up more than 95% of the market, slid 5.2% from a year earlier, erasing all gains made after February 2002, the National Association of Realtors said. New-home prices dropped to the lowest level since December 2003, a Commerce Department report showed.
Bank of America Corp. chief executive Brian T. Moynihan said that the housing slump is the biggest challenge limiting the U.S. economic recovery.
'DAMAGING' PROBLEM
“The problem of delinquent mortgages and falling home values is the most stubborn, entrenched and damaging economic problem our country faces today,” he said March 23 in Detroit at a meeting of the city's Economic Club.
Faced with declining home prices and the growing glut of unsold homes, residential real estate developers are reluctant to boost construction. Housing starts in the U.S. dropped more than forecast in February to the slowest pace since April 2009, and building permits slumped to a record low, the Commerce Department reported March 16.
“Builders just can't make a profit by competing in this market where prices are dropping,” said Patrick Newport, an economist at IHS Global Insight. “The pickup in housing starts that we were expecting to happen this year may be delayed by quite a while, maybe a year or so.”
