Housing Prices Continue to Fall

On March 27^th, Business Insider featured a chart of the Case-Shiller House Price Index.  The index compiles housing prices across twenty of the largest metropolitan areas of America.  An earlier Data in the News post focused on the Case-Shiller House Price Index and how housing prices have continued to fall after reaching a peak in late 2006.  This iteration of the Case-Shiller Index shows that prices have continued to drop.  Just as prices rose drastically beginning in early 1999, the Index shows how they plummeted just as quickly beginning in 2006.  This year, experts predicted an added 3.8% fall by this time of year, and the Case-Shiller Index illustrated a 3.78% decrease – very close to predictions.  Now prices are at levels seen in early 2003, but as Joe Weisenthal of Business Insider notes, “the bottom still hasn’t been hit.”  The index continues to trend downwards, but at a much slower rate than was seen directly after the housing bubble burst in late 2006.

Case-Shiller Index: Housing Prices Decline

The New York Times has gathered data from the Standard & Poor’s Case-Shiller index, which charts prices from 20 major cities across the U.S., to examine how home prices have changed recently. Prices peaked in mid-2006 and soon began their precipitous downturn.  April of 2009 marks the month when home prices appeared to bottom out and commence a sluggish recovery; however, recent data suggests that home prices have actually fallen below this previous low point.

Markets in the 20 metropolitan areas that the index covers have seen prices drop 1.8 percent since April 2009 and 4.0 percent from the beginning to the end of 2011.  Cities like Charlotte, Portland, Seattle and Atlanta where housing prices peaked later – 2007 as opposed to mid-2006 – have experienced the greatest decline.  San Francisco, Detroit, Boston and other housing markets that peaked prematurely in late 2005 to early 2006 have seen prices increase or only slightly decrease since April 2009.  The relationship between when the high point occurred and the change in prices since April 2009 stems from the length of time needed for the markets to self-correct.   For instance in Seattle, where the market peaked in July of 2007, prices are still dropping to realign with income levels in the region.  Of the twenty metropolitan areas, the Las Vegas market has seen the steepest decline in prices, dropping 19.3% since April 2009.  San Francisco, on the other hand, where the market peaked early in 2006, has actually experienced an 8.7 percent increase in housing prices.  

Foreclosed Homes Threaten to Further Weaken Housing Market

An article in the New York Times centered on the concern among some economists that the large number of foreclosed homes owned by banks and mortgage lenders will "deepen the housing slump and create a further drag on the economic recovery." The fear is that "the rise in lender-owned homes could create another vicious circle, in which the growing inventory of distressed property further depresses home values and leads to even more distressed sales."

Currently, big banks and mortgage lenders own over 872,000 homes around the country, are foreclosing on an additional million, and are expected to take control of another several million in the next few years. The impact is already being seen today, as "real estate prices have been declining across the country in recent months."

Lenders are having difficulty selling their properties quickly and at good prices, and in many areas they are repossessing more homes than they are selling. In Atlanta, lenders are repossessing eight homes for every one distressed home they sell; before the housing market's collapse, the ratio was typically one-to-one. According to the Times, "The reasons for the backlog [of unsold distressed properties] include inadequate staffs and delays imposed by the lenders because of investigations into foreclosure practices."

Concerns about the large foreclosed home inventories are real: economists predict that it would "take about three years for lenders to sell their backlog of foreclosed homes." Writes the Times: "As a result, home values nationally could fall 5 percent by the end of 2011, according to Moody’s, and rise only modestly over the following year. Regions that were hardest hit by the housing collapse and recession could take even longer to recover — dealing yet another blow to a still-struggling economy."

Says Mark Zandi, chief economist at Moody's Analytics, in the article: “Housing prices are falling, and they are going to fall some more.”

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