Home Prices Turn Back Clock

The Wall Street Journal

Home-Price Gains Are Erased, Now Stand at 2004-2005 Levels

Home-price declines continued to get steeper in April, according to the S&P/Case-Shiller indexes and the Ofheo home price index, which showed at least three years of gains erased.

Separately, consumer confidence dropped like a stone in June, and expectations hit an all-time low, according to the latest survey from the Conference Board.

Home prices in 20 major U.S. cities have dropped a record 15.3% in the past year and are now back to where they were in 2004, according to the Case-Shiller home price index released Tuesday by Standard & Poor’s. In a separate report, the Office of Federal Housing Enterprise Oversight said U.S. home prices fell to December 2005 levels during April as the housing downturn continued to affect states at the heart of the real estate boom.

The S&P/Case-Shiller home-price indexes, a closely watched gauge of U.S. home prices, show price declines continued to get steeper in April, with prices in every region surveyed now showing year-over-year drops.

But in what may be a small sign that things are at the brink of a turnaround in some areas, three of the major metropolitan areas studied — while still posting negative annual figures — did show some improvement over the declines reported last month. And eight of the 20 metro areas covered showed home-price growth in April from March.

Ofheo, which oversees Fannie Mae and Freddie Mac, said U.S. home prices fell 4.6% in April from the same period in 2007. Home prices, as measured by the agency’s monthly house price index, also fell 0.8% from March to April on a seasonally-adjusted basis.

Ofheo’s index is based on the purchase prices of houses backing mortgages that have been purchased or guaranteed by Fannie Mae and Freddie Mac, which require loans to conform to various standards. Ofheo Director James Lockhart said that may explain why his agency’s index doesn’t show similarly drastic house price declines like other indexes, such as S&P/Case-Shiller.

“Due to the broader geographic reach and narrower range of financing types than other house price indexes, the [Ofheo index’s] fall has been comparatively muted,” Mr. Lockhart said in a statement, though he noted that home prices nationwide have fallen to December 2005 levels.

David M. Blitzer, chairman of Standard & Poor’s index committee, said, “There might be some regional pockets of improvement,” though “on an annual basis the overall numbers continue to decline.”

According to the S&P/Case-Shiller indexes, home prices in 10 major metropolitan areas fell by a record 16.3% in April from a year earlier and 1.6% from March. In 20 major metropolitan areas, home prices dropped 15.3% from a year earlier, also a record decline, and 1.4% from March.

Boston; Charlotte; Chicago, Cleveland; Dallas; Denver; Portland, Ore.; and Seattle were able to avoid April-over-March price drops, led by 2.9% growth in Cleveland and a 1.1% increase in Dallas. Charlotte and Dallas are the only two cities to have two consecutive months of month-to-month growth. Miami and Phoenix were the worst performers month-to-month, each with negative returns in excess of 3%.

No region — not even Charlotte, which had been the only city in the survey to post annual growth the other months this year — was able to avoid a year-over-year drop. Charlotte saw its prices decline 0.1%.

Las Vegas and Miami were again the weakest markets over the past year, posting 26.8% and 26.7% drops, respectively. Las Vegas and Miami were the weakest markets each of the other months this year. S&P noted that the two markets saw some of the fastest growth in the 2004/2005 periods, with annual growth rates surging above 53% and 32%, respectively.

The S&P/Case-Shiller results come a day after Harvard University’s annual report on housing said the housing slump, already shaping up to be the worst in a generation, still hasn’t run its full course. The study said the fall in home prices and the rise in mortgage defaults are the worst since the 1960s and 1970s.

Meanwhile, the Commerce Department said last week that construction of new homes dropped 3.3% in May to a seasonally adjusted annual rate of 975,000. Housing starts were down 32% from a year earlier, while permits for new-home construction, a gauge of future building activity, dropped 1.3% in May to an annual rate of 969,000.