U.S. home price index drops to 2002 level

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This article was published 01/06/2011 (5558 days ago), so information in it may no longer be current.

WASHINGTON — An index of home prices in large metro areas has reached its lowest level since 2002, driven down by foreclosures, a glut of unsold homes and the reluctance or inability of many to buy.

Prices fell from February to March in 18 of the areas tracked by the Standard & Poor’s/Case-Shiller 20-city index. Prices in a dozen markets reached their lowest points since the housing bubble burst in late 2006.

The nationwide index fell for the eighth straight month. Prices have now fallen further since the bubble burst than they did during the Great Depression. It took 19 years for the housing market to regain its losses after the Depression ended.

Prices rose last summer, fuelled by a temporary federal home-buying tax credit, but have since plunged. This report marked a “double dip in home prices across much of the nation,” said David Blitzer, chairman of the index committee at Standard & Poor’s. After adjusting for inflation, the home-price index has sunk to a level not seen since 1999.

Many economists think prices nationally will drop at least 5 per cent more by year’s end. They aren’t likely to stop falling until the glut of foreclosures for sale is reduced, employers start hiring in greater force, banks ease lending rules and would-be buyers regain confidence that a home purchase is a wise investment.

“Folks are having so much difficulty in getting financing for a home,” said Mark Vitner, senior economist at Wells Fargo. “It may be early next year before prices hit bottom.”

Another obstacle to a rebound in prices: a delay in processing foreclosures. Homes in foreclosure sell for, on average, 20 per cent discounts, pulling prices down further. Many foreclosure sales have been delayed while federal regulators, state attorneys general and banks review how those foreclosures were carried out over the past two years.

When they go through, they will trigger a further price drop in many markets. Those declines are “etched in stone,” said Patrick Newport, U.S. economist at IHS Global Insight.

The 12 cities at their lowest levels in nearly four years are Atlanta, Charlotte, Chicago, Cleveland, Detroit, Las Vegas, Miami, Minneapolis, New York, Phoenix, Portland, Ore., and Tampa.

Minneapolis fared worst in March; prices there fell 3.7 per cent. They dropped 2.4 per cent in Charlotte and Chicago and 2 per cent in Detroit.

In the seven years before its peak in July 2006, the home-price index surged 155 per cent. It has since fallen 33 per cent.

— The Associated Press

Americans losing faith in economy

NEW YORK — Americans are losing faith that the economy will keep improving, according to a monthly survey.

The U.S.-based Conference Board’s consumer confidence index fell to a six-month low of 60.8 from a revised 66 in April, a sign of the toll that high gas prices, a choppy job outlook and a moribund housing market are taking. Economists had expected an increase to 67.

“Consumers are considerably more apprehensive about future business and labour market conditions as well as their income prospects,” said Lynn Franco, director of the Conference Board Consumer Research Center. She said fears of inflation that eased in April picked up again in May.

The index, released Tuesday, is far from a reading of 90, which indicates a healthy economy.

The results paint a different picture than earlier this year, when many hoped the economic recovery was gaining steam. In February, consumer confidence hit a three-year high. Since then, prices for food and gasoline have gone up while house prices have dropped.

Part of the problem in May was the confidence survey’s cutoff of May 18 did not give consumers time to react to falling gas prices, which peaked early in the month, IHS Global Insight Economist Chris Christopher said. “We expect consumer confidence to pick up next month because those respondents will be able to show appreciation for falling gasoline prices.”

Still, gasoline isn’t consumers’ only worry, said Moody’s Chief Economist John Lonski.

— The Associated Press