It is a fantasy to believe that the pain can be avoided or that dragging it out or slowing it down is a good thing. That thinking is exactly what got us into an unsustainable bubble in the first place.
December Home Prices in 20 U.S. Cities Fall 18.5% From Year Ago
By Timothy R. Homan and Courtney Schlisserman
Feb. 24 (Bloomberg) -- Home prices in 20 U.S. cities declined 18.5 percent in December from a year earlier, the fastest drop on record, as foreclosures climbed and sales sank.
The decrease in the S&P/Case-Shiller index was more than forecast and followed an 18.2 percent drop in November. The gauge has fallen every month since January 2007, and year-over- year records began in 2001.
Record foreclosures are contributing to declining property values and household wealth, crippling the consumer spending that makes up about 70 percent of the economy. The Obama administration has pledged to spend $275 billion to help stabilize the housing market, including $75 billion to bring down mortgage rates and encourage loan modifications.
“Falling home prices are prompting potential homebuyers to wait for an even better purchase price,” Steven Wood, president of Insight Economics LLC in Danville, California, said before the report. “Housing’s contribution to economic growth will be significantly negative again” in the first three months of 2009, he said.
Economists forecast the 20-city index would fall 18.3 percent from a year earlier, according to the median of 28 estimates in a Bloomberg News survey. Projections ranged from declines of 17.4 percent to 19 percent.
Compared with a year earlier, all areas in the 20-city survey showed a decrease in prices in December, led by a 34 percent drop in Phoenix, a 33 percent slide in Las Vegas and a 31 percent decline in San Francisco.
S&P/Case-Shiller also released quarterly figures for home prices nationally. That measure showed an 18.2 percent drop in the three months through December from the same period in 2007, compared with a 16.6 percent year-over-year decline in last year’s third quarter.
“The broad downturn in the residential real estate market continues,” David Blitzer, chairman of the index committee at S&P, said in a statement. “There are very few, if any, pockets of turnaround that one can see in the data.”
Consumer confidence this month probably sank to a record low as more Americans become concerned about job losses, economists say the Conference Board’s sentiment index will show today at 10 a.m.
Robert Shiller, chief economist at MacroMarkets LLC and a professor at Yale University, and Karl Case, an economics professor at Wellesley College, created the home-price index based on research from the 1980s.
The 20-city index is down 27 percent from its 2006 peak.
Home prices decreased 2.5 percent in December from the prior month, exceeding the November decrease of 2.3 percent, the report showed. The figures aren’t adjusted for seasonal effects so economists prefer to focus on year-over-year changes instead of month-to-month. Phoenix and Las Vegas also showed the biggest one-month declines.
Other housing reports have shown the four-year housing slump is likely to continue.
Homebuilders broke ground on the fewest houses on record in January, the Commerce Department said last week. Declining construction has hurt economic growth for the last three years and is likely to weigh further in the first quarter of 2009.
The glut of unsold homes is forcing builders to cut back on construction. Toll Brothers Inc., the largest U.S. luxury homebuilder, this month said its first-quarter revenue plunged 51 percent.
“The past five months have been among the most difficult in U.S. economic history,” Toll Brothers Chief Executive Officer Robert Toll said on a conference call Feb. 11. Homebuyers are worried they may lose their jobs and won’t be able to sell their existing homes, he said.
Foreclosure filings in the U.S. soared 81 percent last year to 2.3 million, the highest on record, according to RealtyTrac Inc., an Irvine, California-based seller of default data. The group said in a Feb. 12 statement that foreclosures rose 18 percent in January from a year earlier.