Steep Home-Price Drop Stirs Fears
Market May Get Worse Still
As Effect of Stricter Lending
Has Yet to Show Up in Data
By KELLY EVANS
August 29, 2007
The decline in U.S. home prices accelerated in the second quarter as a glut of unsold homes and tighter lending standards continued to weigh on the market.
Home prices nationwide tumbled an average 3.2% from a year earlier, according to an index compiled by Standard & Poor's Corp. The decline was sharper than the year-to-year decline in the first quarter, when the S&P/Case-Shiller national home-price index dropped 1.6%.
Lehman Brothers Holdings Inc. economist Michelle Meyer attributed falling home prices to a "huge imbalance" in the housing market: "There's a high presence of risky [mortgage] loans and a massive overhang of homes for sale," she said.
Home prices have been falling for more than a year and economists had widely expected the S&P/Case-Shiller index to reflect that trend. But the size of the latest decline was worrisome in part because it was larger than that of competing home-price indexes. A separate report released Monday by the National Association of Realtors found that the median sales price of existing homes slipped to $228,900 in July, down just 0.6% from a year earlier.
Moreover, the latest S&P/Case-Shiller survey covers the April through June period, prior to the sharp deterioration in the health of the nation's mortgage lenders that came to light this month. That trend, which has been unfolding for months, picked up pace in August as Wall Street cut off funding to mortgage lenders and mortgage companies sharply curtailed their lending to consumers, squeezing a number of buyers out of the market. That could lead to further deterioration in home prices in the future.
"These pricing pressures have not been seen in post-World War II history," said economist Brian Bethune at Global Insight. "It's very difficult for the markets to be able to deal with that kind of stress."
Mr. Bethune noted that today's price declines are worse than those during the housing bust of 1990-91 that preceded a national recession. "The housing market is definitely a leading indicator of a potentially more serious downward moment in the economy," he said.
Among the 20 cities in the S&P/Case Shiller survey, Detroit was the biggest decliner, with the average price of a home there falling 11% from the previous June. The Detroit-area economy continues to suffer from a struggling auto industry and a high concentration of risky subprime loans. "Bubble" regions like San Diego, Tampa, and Washington, D.C., where home prices had risen rapidly during the boom, all decreased by more than 7%.
Not all metropolitan areas reported home price declines, however. Seattle home prices were up 7.9% from a year earlier, while prices in Charlotte, N.C., rose 6.8%. Portland, Ore., Atlanta, and Dallas also bucked the downward trend.
The Seattle market may be benefiting from the area's booming aircraft and technology industries, which are adding jobs and fueling demand for homes, according to Mr. Bethune. Charlotte similarly benefits from the recent strong performance of its finance industry, while Portland is increasingly attracting retirees from higher-price cities like Phoenix and Las Vegas.
Notably, the S&P/Case-Shiller survey found that prices in the New York City metropolitan area declined, even though most local real-estate agents say prices for expensive condominiums in Manhattan continue to surge. There are two explanations for the difference. First, the S&P/Case-Shiller survey covers only single-family homes, not condominiums and cooperatives, which dominate the Manhattan market. Also, while prices are still rising in parts of the city, they are starting to decline in the suburbs.
"There's a divergence between what's going on with suburban homes and the apartment/condo market in the city center," said Standard & Poor's Vice President and index committee member Maureen Maitland.
Ms. Maitland also said the index committee was watching prices in the Boston area, which were among the first in the nation to decline -- for any signs of recovery. "There's been some chatter about the Northeast [market] turning around," she said, as price declines in Boston moderate. But she said it would take several months to know for sure whether such a turnaround is taking place.
The Office of Federal Housing Enterprise Oversight index of second-quarter U.S. home prices, which also tracks the same homes over time, will be released tomorrow. The Ofheo data, however, only include those homes with loans backed by Fannie Mae and Freddie Mac -- which excludes many homes in high-price housing markets.
Market May Get Worse Still
As Effect of Stricter Lending
Has Yet to Show Up in Data
By KELLY EVANS
August 29, 2007
The decline in U.S. home prices accelerated in the second quarter as a glut of unsold homes and tighter lending standards continued to weigh on the market.
Home prices nationwide tumbled an average 3.2% from a year earlier, according to an index compiled by Standard & Poor's Corp. The decline was sharper than the year-to-year decline in the first quarter, when the S&P/Case-Shiller national home-price index dropped 1.6%.
Lehman Brothers Holdings Inc. economist Michelle Meyer attributed falling home prices to a "huge imbalance" in the housing market: "There's a high presence of risky [mortgage] loans and a massive overhang of homes for sale," she said.
Home prices have been falling for more than a year and economists had widely expected the S&P/Case-Shiller index to reflect that trend. But the size of the latest decline was worrisome in part because it was larger than that of competing home-price indexes. A separate report released Monday by the National Association of Realtors found that the median sales price of existing homes slipped to $228,900 in July, down just 0.6% from a year earlier.
Moreover, the latest S&P/Case-Shiller survey covers the April through June period, prior to the sharp deterioration in the health of the nation's mortgage lenders that came to light this month. That trend, which has been unfolding for months, picked up pace in August as Wall Street cut off funding to mortgage lenders and mortgage companies sharply curtailed their lending to consumers, squeezing a number of buyers out of the market. That could lead to further deterioration in home prices in the future.
"These pricing pressures have not been seen in post-World War II history," said economist Brian Bethune at Global Insight. "It's very difficult for the markets to be able to deal with that kind of stress."
Mr. Bethune noted that today's price declines are worse than those during the housing bust of 1990-91 that preceded a national recession. "The housing market is definitely a leading indicator of a potentially more serious downward moment in the economy," he said.
Among the 20 cities in the S&P/Case Shiller survey, Detroit was the biggest decliner, with the average price of a home there falling 11% from the previous June. The Detroit-area economy continues to suffer from a struggling auto industry and a high concentration of risky subprime loans. "Bubble" regions like San Diego, Tampa, and Washington, D.C., where home prices had risen rapidly during the boom, all decreased by more than 7%.
Not all metropolitan areas reported home price declines, however. Seattle home prices were up 7.9% from a year earlier, while prices in Charlotte, N.C., rose 6.8%. Portland, Ore., Atlanta, and Dallas also bucked the downward trend.
The Seattle market may be benefiting from the area's booming aircraft and technology industries, which are adding jobs and fueling demand for homes, according to Mr. Bethune. Charlotte similarly benefits from the recent strong performance of its finance industry, while Portland is increasingly attracting retirees from higher-price cities like Phoenix and Las Vegas.
Notably, the S&P/Case-Shiller survey found that prices in the New York City metropolitan area declined, even though most local real-estate agents say prices for expensive condominiums in Manhattan continue to surge. There are two explanations for the difference. First, the S&P/Case-Shiller survey covers only single-family homes, not condominiums and cooperatives, which dominate the Manhattan market. Also, while prices are still rising in parts of the city, they are starting to decline in the suburbs.
"There's a divergence between what's going on with suburban homes and the apartment/condo market in the city center," said Standard & Poor's Vice President and index committee member Maureen Maitland.
Ms. Maitland also said the index committee was watching prices in the Boston area, which were among the first in the nation to decline -- for any signs of recovery. "There's been some chatter about the Northeast [market] turning around," she said, as price declines in Boston moderate. But she said it would take several months to know for sure whether such a turnaround is taking place.
The Office of Federal Housing Enterprise Oversight index of second-quarter U.S. home prices, which also tracks the same homes over time, will be released tomorrow. The Ofheo data, however, only include those homes with loans backed by Fannie Mae and Freddie Mac -- which excludes many homes in high-price housing markets.
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