Thread: Home prices fall 4.1%, near 2009 lows

Home prices took a big hit at the end of 2010, even as the rest of the economy gained steam.

National home prices fell 4.1% during the last three months of 2010, compared with 12 months earlier, according to the latest report from the S&P/Case-Shiller home price index, a closely watched indicator of market trends. They were down 1.9% compared with three months earlier.

"Despite improvements in the overall economy, housing continues to drift lower and weaker," said David Blitzer, spokesman for S&P.

And things may get a lot worse, said Robert Shiller, a Yale economist and half of the Case-Shiller team, in a web conference after the report's release.

"There's a substantial risk of home prices falling another 15%, 20% or 25% more," he said.

Shiller cited a few reasons for his bearish stance. The government is expected to reduce the presence of Fannie Mae and Freddie Mac in the housing market. These agencies currently provide loan guarantees for about two-thirds of mortgages. If they fade away, private mortgage money will have to fill the gap and the cost of mortgage borrowing will surely rise. That will hurt home prices.

There's also talk of possibly ending the mortgage interest tax deduction for many homeowners. Meanwhile, the weak economic recovery may be threatened by higher oil prices as a result of turmoil in the Mideast.

At the web conference, Shiller's index partner Karl Case wasn't much more optimistic.

"I see [the market] bouncing along the bottom with a slight negative trend," said Case, an economics professor emeritus at Wellesley College.

A widespread drop

On a seasonally adjusted basis, the national index surpassed the low it hit in the first quarter of 2009.

The decline was widespread, with 18 of the 20 large cities covered by a separate S&P/Case-Shiller index recording losses for the year. The only gains were posted by Washington, which was up 4.1%, and San Diego, which saw prices climb 1.7%.

The biggest loser for the year was Detroit, where prices dropped 9.1%.

"We're really close to being at the bottom again," said S&P's Maureen Maitland. "Last year's gains came courtesy of the tax incentives and the market is not holding up on its own."

The impact of homebuyer tax credits ended back last spring, and the two quarters of data since then reflect that. Prices fell steeply during the third quarter, down 3.3%. When the credit was in effect, prices rose consistently, up four out of five quarters starting in the second quarter of 2009.

S&P reported that both the company's 10- and 20-city indexes also fell month over month. In three cities, Detroit, Cleveland and Las Vegas, home prices have dropped below their January 2000 levels -- yes, you'd have to go back to the past millennium to find lower prices there.

Eleven markets, including New York and Chicago, have reached their lowest levels since home prices peaked in 2006 and 2007.

The losses were not unexpected, according to Brad Hunter, chief economist for Metrostudy, a housing market research firm.

"It's clear now that, going back to last fall, the apparent strength was a false strength," he said. "Now that the tax credits are gone, we're back to where the training wheels are off, to normal consumer demand."

He expects home prices to decline gradually throughout 2011, with markets picking up only when hiring increases substantially.

Home prices fall 4.1%, near 2009 lows - Yahoo! Finance


This is one of those good bad things. Fannie & Freddie should have reduced their role long ago but that's a different topic of debate.

IMO US home ownership rates will continue to drop probably down to 55% in 15 years. Many people that were not financially strapped 5-10 years ago will find themselves unable to afford the current home they have been in for 10+ years, etc. as decreased wages, bonuses, etc. have all but gone away for many not in top sales or upper management (District and above) in the corporate structure. home values will continue to decrease on some metros, can't see the banks continuing to modify loans (the few that actually are).

currently there are far too many big homes that people can not afford to buy are to heat/cool, etc. housing market needs to shift back to building smaller more cost efficient homes basically going "Green". I'm not sure of the exact number but I did a little reading about green homes a couple of months ago and after something like 1,800sq ft energy costs increase by like 30%+ or something around that.

as they say "all good and bad habits start in the home". when kids grow up in a big house full of various kinds of waste and excess, well...modeling after the parents will always have a greater effect than anything a child could be taught at school about being fiscally conservative in the home.

Originally Posted by vortrit

That's true, but I think he waited as long as he could. You have to have a place to live in the meantime, so there lies the problem. I think he gave like 20G's for this house, which is huge. It's a three story house and I think there's 6 or 7 bedrooms....

That's a good point...if you need a house you need a house.