Record Drop in Index of Home Prices

By DAVID STREITFELD

April 1, 2009

It may be spring on the calendar but housing prices are locked into perpetual winter.

The Standard & Poor’s Case-Shiller Home Price Index, a widely watched measure of 20 metropolitan areas, fell 19 percent in January from a year earlier. That was a record drop, slightly edging out the previous month.

Prices in the worst-hit metropolitan areas have now fallen nearly by half. None of the cities showed month-to-month improvements. Thirteen showed record annual rates of decline.

“There’s no daylight that I can see in this report,” said David Blitzer, chairman of S.& P.’s index committee.

He cited the numbers for Phoenix as “gruesome.” Prices there fell 5.5 percent in one month, and are now down 48.5 percent from their June 2006 peak.

Las Vegas, Miami, San Francisco and San Diego are not far behind. All have fallen more than 40 percent. The best performing city in the index is Dallas, down a mere 10.8 percent from its peak. Unlike the rest of the Sun Belt and the coasts, Dallas never had a boom, so it did not have as far to fall.

Here is what passes for good news in the latest report: in a handful of cities, including Minneapolis, New York and Charlotte, N.C., the rate of decline in January slowed a little from the rate of decline in December.

The index is now at 146.40, its lowest point since September 2003. The peak was 206.52 in July 2006. The prices are calibrated to a January 2000 level of 100.

Joshua Shapiro, chief United States economist for MFR Inc., said in a research note that “it is unlikely that we are anywhere near a bottom in nationwide home prices.” He estimated the index was perhaps two-thirds of the way through its ultimate total decline.

That would take big-city prices back to where they were in late 2001 or early 2002 and would probably encourage another round of owners to surrender their underwater homes to lenders.

The monthly Case-Shiller report, widely considered one of the most authoritative gauges of home prices, focuses on major cities, which happen to be the places where the boom was most frenzied. Even in those communities, realty agents argue that the report does not give a full picture of a market that can vary by neighborhood and price level.

Changes in housing prices traditionally lag behind changes in sales volume, and volume has been showing an uptick lately in some places. Much of the sales activity in the Sun Belt is coming from foreclosure sales by banks, not traditional sales by homeowners. Prices in these areas will not begin to recover until the foreclosures end.

Jim Klinge, a prominent San Diego agent, said the collapse in prices had greatly increased sales volume. “There’s a group of buyers that need housing more than they need to pay attention to the doom-and-gloom headlines we see every single day,” he said.

One of them is Larry Salzman, a lawyer turned Internet entrepreneur who is seeking to buy a townhouse in El Cajon, Calif., after renting for several years. He is paying $240,000, which will shrink his monthly housing costs by a few hundred dollars.

Mr. Salzman would have liked a bigger, nicer place, but higher-end houses have not declined as much as cheaper ones.

Mr. Klinge said his client was not unique. Above $500,000, the market is still dead. “All the higher-end sellers are holding out for top prices, thinking things are going to get better sooner or later,” the agent said.

For a brief time during the last few weeks, it seemed that moment might be sooner.

The National Association of Realtors said sales of previously owned homes rose 5.1 percent in February, while the Census Bureau said sales of new one-family homes in the month increased 4.7 percent above the revised January rate. The Realtors association also said that the median home price in February was $165,400, slightly better than January’s $164,800.

Since the Case-Shiller numbers cover an earlier period, “it is possible that the market hit bottom in January and is starting to improve,” an IHS Global Insight analyst, Patrick Newport, wrote in a report.

Possible but not likely, he decided, concluding that the bottom would not come until next year.