Housing Market Shivers

January’s 3.1% Price Drop Stirs Fears of ‘Double Dip’; Only Two Big Cities Gain

The Wall Street Journal

30 March  2011

Housing prices across the U.S. continued falling in January, raising fears of a double dip in the home-buying market and a longer slog toward recovery than once expected.

Average sale prices of single-family homes in 20 major metropolitan areas fell 3.1% from a year ago, according to the S&P/Case-Shiller home-price index released Tuesday.

“January brings us weakening home prices with no real hope in sight for the near future,” said David M. Blitzer, chairman of the Index Committee at rating firm Standard & Poor’s. “The housing-market recession is not yet over, and none of the statistics are indicating any form of sustained recovery.…At worst, the feared double-dip recession may be materializing.”

Only two cities—San Diego and Washington—recorded price increases year over year.

The declines in the price index, which only gauges homes that have been sold before and excludes new construction, set a tone for a spring market with buyers firmly in control. The silver lining, economists said, is that affordability and low rates might spur more activity this spring than last year, which relied on a federal tax credit to stimulate demand. The average rate on a 30-year fixed rate mortgage inched up last week to 4.81%; a year ago, it was 4.99%, according to mortgage firm Freddie Mac.

Pending home sales—those with purchase contracts signed—increased 2.1% last month, with some regions showing more strength than others, the National Association of Realtors reported this week. Mortgage applications also have been on the rise for much of March.

After more than 30 years of renting, Karen and Bernie Donovan have saved $16,500 and hope to buy a home in Florida soon. Because her husband’s employment as an iron worker is erratic—he is currently looking for work—and she works part time at a T-shirt company and is trying to start a popcorn business, Mrs. Donovan doubts they would qualify for a conventional loan, despite the down payment they can make. They plan to cash out of some investments to buy.

“It’s our time now,” Ms. Donovan said. “We want to find the deal of a lifetime.”

Sellers, meanwhile, are finding they must lower prices to meet buyers’ expectations and compete with distressed sales, which represent more than a third of all transactions.

For nearly a year, Jessica Strabley of Atlanta has been trying to sell her two-bedroom condominium. Only two prospective buyers have toured the unit, which she bought in August 2008 for $179,000. Last month, she cut the price for a fourth time to $175,000.

“I think it’s a great time to buy if you’re in the position to buy,” said Ms. Strabley, 31 years old, who works in telecommunications. “If you’re trying to sell, it’s not a good position to be in. Everyone that I know has pretty much either decided not to sell because they can’t take the loss or they’ve ended up taking a loss.”

According to the index, Atlanta-area prices fell 7% in January compared with last year.

Meanwhile, regulators proposed new mortgage-lending rules on Tuesday that could raise borrowing costs or limit access to loans for home buyers who can’t qualify for a loan or insurance from government-backed firms and federal agencies.

At the same time, those government entities are boosting fees that they charge borrowers to protect against the risk of future defaults.

“They’re really nailing consumers with higher fees,” said Anthony Sanders, a real-estate finance professor at George Mason University in Fairfax, Va. “From a fiscal-soundness perspective, that makes sense, but it’s not another good piece of news for trying to revive the housing market.”

Such pressures—and a still-shaky labor market—affect buyers’ psychology and confidence in real estate and the overall economy, Mr. Sanders said.

“Prices are low, rates have been low. We have set up what in normal times would be a housing boom,” he said. “Well, we already went through the boom.”

Homeprice

The S&P/Case-Shiller Composite 20-city home price index, a broad gauge of U.S. home prices, posted a 1% drop in January from a month earlier and fell 3.1% from a year earlier, as the housing market faced a new round of trouble.

Nineteen of 20 cities in the index posted month-to-month declines in November — just Washington, D.C. notched an increase. On a seasonally adjusted basis, which aims to take into account the slower winter selling season, eight cities — Atlanta, Boston, Cleveland, Dallas, Denver, Las Vegas, Los Angeles and Washington — posted monthly increases.

Only two areas of the U.S. — San Diego and Washington — posted year-over-year gains. Eleven markets — Atlanta, Charlotte, Chicago, Detroit, Las Vegas, Miami, New York, Phoenix, Portland, Seattle and Tampa — hit their lowest points since home values started dropping more than four years ago, pushing prices in those areas below the lows seen in most regions in spring 2009. Average home prices in Atlanta, Cleveland, Detroit and Las Vegas are now below January 2000 levels.

“The enormous supply overhang of existing homes (particularly factoring in all those in foreclosure or soon to be) promises to keep pressure on prices for some time,” said Joshua Shapiro, chief U.S. economist at MFR Inc. “From a longer-term perspective, it is important to keep in mind that in the seven years leading up to the peak in July 2006, the nonseasonally adjusted national 20 city home price index jumped by 155% (126 index points)… So far, this index has dropped by 32% (66 index points) in the 55 months since the peak.”

Home Prices, by Metro Area

Below, see data from the 20 metro areas Case-Shiller tracks, sortable by name, level, monthly change and year-over-year change — just click the column headers to re-sort. The Case Shiller indices have a base value of 100 in January 2000. So a current index value of 150 translates to a 50% appreciation rate since January 2000 for a typical home located within the metro market.

Metro Area
January 2011 Level
Monthly Change
Annual Change
Atlanta 99.59 -0.4% -7.0%
Boston 152.07 -0.3% -0.6%
Charlotte 111.50 -1.1% -4.8%
Chicago 115.78 -1.8% -7.5%
Cleveland 99.36 -0.8% -3.8%
Dallas 114.07 -0.5% -2.8%
Denver 122.73 -1.1% -2.3%
Detroit 66.02 -1.7% -8.1%
Las Vegas 99.23 -0.3% -4.4%
Los Angeles 169.88 -0.6% -1.8%
Miami 141.30 -1.3% -4.7%
Minneapolis 113.21 -3.4% -7.6%
New York 166.30 -0.9% -3.0%
Phoenix 101.54 -1.5% -9.1%
Portland 135.80 -1.8% -7.8%
San Diego 157.03 -1.2% 0.1%
San Francisco 133.37 -1.9% -1.7%
Seattle 135.41 -2.4% -6.7%
Tampa 128.52 -1.0% -7.0%
Washington 183.75 0.1% 3.6%

Sources: Standard & Poor’s and FiservData