The Wall Street Journal
31 May 2011
U.S. home prices fell 4.2% in the first quarter of 2011, hitting a new post-bubble low and sending the battered housing sector into a double dip, according to the S&P/Case-Shiller home-price index released Tuesday.
Twelve of the 20 metropolitan areas tracked in the index posted new lows in March, and prices nationally have fallen 5.1% in the last year, pushing them back to 2002 levels.
“This month’s report is marked by the confirmation of a double-dip in home prices across much of the nation,” said David M. Blitzer, chairman of the S&P Index Committee. “Home prices continue on their downward spiral with no relief in sight.”
Separately, the mood among U.S. consumers fell steeply in May, dragged down by more pessimism about job prospects and future incomes, according to a report released Tuesday.
The Case-Shiller index of 10 major metropolitan areas fell 0.6% and the 20-city index was down 0.8% in March from February. Compared with a year earlier, unadjusted March prices fell 2.9% for the 10 major markets while the 20-city index dropped 3.6%.
Only the Washington, D.C., and Seattle markets saw month-to-month growth of 1.1% and 0.1%, respectively. Minneapolis showed the steepest decline, with prices falling 3.7%.
Julie Lindsay, a retired state worker in Minnesota, listed her three-bedroom house in the St. Paul suburb of Centerville for sale in April, thinking it would show better in the spring.
“The flowers are planted. Things look nice,” she said. “But it’s not been great. I’ve had two people come see it, a couple of phone calls and that’s about it.”
She’s lowered the price to $145,000—and tried not to think about what the home was valued at three or four years ago. “It was worth $200,000 then. Now the county says it’s worth $92,000. Holy mackerel,” she says.
Ms. Lindsay suspects a number of more affordable foreclosures nearby is hurting her chances of selling. “You can get newer houses for what I am asking for my old house if you buy a foreclosure,” she said.
Economists also say a shortage of “trade up” buyers has become one of the biggest weights on housing, leaving many markets dependent on first-time buyers and investors who land discounts on foreclosures by making all-cash bids.
“There’s just no equity,” says Christopher Thornberg, a housing economist at Beacon Economics in Los Angeles. “You add that up and what you’re dealing with is, of course, a situation where there’s not enough demand to really push the market forward.”
Once federal home-buyer tax credits expired last year, the indexes—based on the three-month averages of home prices—started to fall again in August, increasing fears of a double dip in the home-buying market.
“The economists who are calling this a double dip are sort of missing the point. The market showed a little stability that was largely stimulated by the tax credit, but that stability was very short lived,” said Michael Feder, chief executive of Radar Logic. “To call this a double dip is an overstatement. The fact is we have never really started to recover.”
The Conference Board, a private research group, said its index of consumer confidence declined to 60.8 this month from a revised 66.0 in April, first reported as 65.4.
The May reading was the lowest since November 2010 and was far worse than the 66.4 expected by economists surveyed by Dow Jones Newswires.
Consumer expectations for economic activity over the next six months plunged to 75.2 in May from a revised 83.2 in April, originally reported as 82.6.
The present situation index, a gauge of consumers’ assessment of current economic conditions, fell to 39.3 from a revised 40.2, originally reported as 39.6.
Lynn Franco, director of the Conference Board Consumer Research Center, said, “A more pessimistic outlook is the primary reason for this month’s decline in consumer confidence. Consumers are considerably more apprehensive about future business and labor market conditions as well as their income prospects.”
Inflation expectations picked up this month. The report shows consumers, on average, expect inflation to increase to 6.6% a year from now. That’s up from the 6.3% rate expected in April.
Confidence fell in May among all income groups, except for the lowest group that covers households earning under $15,000 a year.
The report shows 43.9% think jobs are “hard to get” this month, up from 42.4% in April, while 5.6% of respondents think jobs are “plentiful” in May, up from 4.6% last month.
But the percentage of consumers expecting more jobs in the months ahead dropped to 15.9% from 17.8%, while the proportion expecting fewer jobs increased to 20.8% from 18.7%.
Consumers were also less upbeat about income prospects. The report showed 14.8% think their incomes will increase over the next six months, down from 17% in April, while 15.2% expect their incomes will decrease, up from 14.7%.
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