The Wall Street Journal

 May 27, 2008

The S&P/Case-Shiller home-price indexes, a closely watched gauge of U.S. home prices, saw prices fall further in the first quarter amid the continued deterioration of home prices as the subprime-loan meltdown weighs on the sector.

Meanwhile, new-home sales rose in April but failed to meet expectations because the government revised lower the level of demand for the previous month.

In the first quarter, the Case-Shiller indexes showed home prices across the country fell 14% from a year earlier, representing the largest drop in the 20-year history of the indexes. From the fourth quarter, prices fell 6.7%.

“The steep downturn in residential real estate continues,” David M. Blitzer, chairman of S&P’s index committee, said. He added, “There are very few silver linings that one can see in the data. Most of the nation appears to remain on a downward path.”

According to the indexes, released by ratings firm Standard & Poor’s, home prices in 10 major metropolitan areas fell 15% in March from a year earlier and 2.4% from February.

In 20 major metropolitan areas, home prices dropped 14% from a year earlier and 2.2% from February.

Charlotte and Dallas managed to avoid March-over-February drops in prices, with Charlotte eking out 0.2% growth and Dallas posting a 1.1% increase. Charlotte also reported a 0.8% rise year-over-year, as — for the third month in a row — it remained the only city to post annual growth.

Las Vegas was the weakest market, posting a 26% drop in March from the prior year, followed by 25% and 23% drops in Miami and Phoenix, respectively. Las Vegas and Miami had been the weakest markets in January and February.

Las Vegas and Miami also were the biggest decliners month-on-month, posting 4.4% and 4.5% drops, respectively.

According to a separate measure released last week by the Office of Federal Housing Enterprise Oversight, home prices fell an average of 1.7% nationwide in the first quarter from the final three months of 2007. The decline was the largest in the index’s 17-year history. The index differs from the Case-Shiller index in several ways; notably, Ofheo data excludes homes with jumbo mortgages.

Earlier this month, the Commerce Department offered the latest sign that the struggling U.S. housing market may hold back economic growth for much of the year. While home construction unexpectedly jumped 2.5% in April follows months of bad weather that held back many builders, permits declined 8.9% from March to an annual rate of 1.43 million, marking the largest percentage drop since a 24% tumble in February 1990. Permits are now down 41% from their 2005 peak. Housing permits, which are down 28% from a year ago, predict the market’s direction better than housing starts.

Meanwhile, the National Association of Home Builders also said earlier this month that home builders’ confidence has fallen substantially, to match the lowest point in the latest economic cycle. The meltdown in subprime loans is expected to continue weighing on the sector, and high inventories will need to be worked off.

New Home Sales Increase

Sales of single-family homes increased by 3.3% last month to a seasonally adjusted annual rate of 526,000, the Commerce Department said Tuesday. Year over year, new-home sales were 42% lower than the level in April 2007. March new-home sales fell 11.0% to an annual rate to 509,000; originally, the government said March sales dropped by 8.5% to 526,000. Economists had forecast an April sales rate of 533,000.

The median price of a new home increased by 1.5% to $246,100 in April from $242,500 in April 2007. The average price climbed by 3.0% to $321,000 from $311,700 a year earlier. In March, the median price was $225,500 and the average was $291,500. The increase in prices may be positive for future sales; declining prices have been stopping consumers from buying homes as they wait for still-lower prices.

Inventories fell to an estimated 456,000 homes for sale at the end of April, down from March’s 467,000. The ratio of new houses for sale to houses sold fell in April to 10.6 from 11.1 in March. Originally, the government estimated the March ratio at 11.0.

Regionally last month, new-home sales increased 5.8% in the Midwest, 41.7% in the Northeast, and 8.3% in the West. Sales fell 2.4% in the South. An estimated 47,000 homes were actually sold in April, down from 49,000 in March, based on figures not seasonally adjusted.