February 24th, 2009
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| Article by:
JACK HEALY
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Home prices in the United States plunged at the fastest pace on record in December, a sign that housing is likely to continue declining in the months ahead as the economy sinks deeper into recession.
Single-family home values in 20 major metropolitan areas fell 18.5 percent in December compared with a year earlier, according to a data released Tuesday by Standard & Poor’s Case-Shiller home price index. Housing prices dropped 2.5 percent from November to December.
Nationwide, housing prices in the last three months of 2008 sank to their lowest levels since the third quarter of 2003. The slide has raised fears that potential buyers will stay on the sidelines and wait for the market to fall even farther, reinforcing the downward momentum.
“It’s a deflationary spiral,” said Dan Greenhaus, an analyst in the equity strategy division of Miller Tabak & Company. “Prices go down, people hold back, prices go down further, people hold back, and so on and so forth.”
The rapidly deteriorating economy also hammered consumer confidence this month, according to a report released Tuesday by the private Conference Board. The group’s index of consumer confidence dropped to a new low of 25 in February from 37.4 a month earlier as people fretted about losing their jobs, earning less and general economic malaise.
More than half of the 5,000 households surveyed said that business conditions were bad, and more than 90 percent said they expected conditions to be the same or worse in the next six months. Only 7.1 percent expected there to be more jobs in six months, and 7.6 percent of people said they would be making more money in six months.
According to the survey, 2.3 percent of people plan to buy a home in the next six months, down from 2.9 percent last February.
Although houses are now cheaper and mortgage rates have fallen to 5.22 percent from 6.10 percent about a year ago, the rapidly deteriorating economy and rising unemployment have scared off potential buyers, economists said. The unemployment rate has risen to 7.6 percent nationwide, and the economy is shedding more than 500,000 jobs every month.
“There are so many homes out there, and there’s so much momentum behind falling prices that they’re going to continue to drop regardless of anything, including the Obama plan.”
A week ago, President Obama laid out a $275 billion plan to help as many as nine million families refinance their mortgages or avoid foreclosures using a variety of incentives and subsidies to try to lower interest rates and the principal on existing home mortgages.
The plan would be available for mortgages that are not more than 5 percent below the current market value of a house, which could leave out homeowners in cities whose real-estate prices have receded the most from their peaks. Prices fell in all of the 20 cities surveyed by Case-Shiller, but the declines were starkest in Phoenix and Las Vegas as well as much of Florida and Southern California, where development has all but dried up. In those parts of the country, current prices have fallen 40 percent or more from their highest points.
“The Sun Belt continues to get hardest hit in terms of just about any measure,” said David M. Blitzer, chairman of Standard & Poor’s index committee.
Prices in Phoenix fell 5.1 percent in December alone, and were down 34 percent since December 2007. In Las Vegas, which was recently rated “America’s emptiest city” by Forbes magazine, prices dropped 4.8 percent in December and were down 33 percent for the year.
The declines for 2008 were shallowest in Dallas and Denver, where prices fell about 4 percent.
“We continue to believe that it is unlikely that we are anywhere near a bottom in nationwide home prices,” Joshua Shapiro, chief United States economist at MFR, wrote in a note.
Since the recession began in December 2007, the pace of declines in housing prices has accelerated as the financial crisis spread and unemployment rose.
According to the National Association of Realtors, the country’s median home price was $175,400 in December, down nearly 25 percent from its peak of $230,100 in July 2006.
The two-year decline in real-estate prices followed more than a decade of steady growth in home prices.
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