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Drop In Home Prices Continue To Accelerate

Aug 17, 2007
Declines in home prices in 20 U.S. metropolitan areas accelerated in the 12 months ended in February, a private survey showed today.

Values fell 1 percent from February 2006 after dropping 0.1 percent in the year ended January. Slow demand has left a a huge number of homes for sale on the market that's forcing sellers to reduce prices.

A increase in foreclosures may add to the number of unsold homes, suggesting prices will be slow to rebound and housing will continue to limit economic growth.

There's just too much inventory of unsold homes, and simple supply and demand says that prices will have to come down. We expect prices to be under continued downward pressure for a while.

Compared with a month earlier, home prices fell 0.5 percent following a 0.6 percent January decline. The figures aren't seasonally adjusted, so economists prefer to focus on the year- over-year change. The decline in price is symptomatic of the continuing correction in the market from the oversupply in housing.

Of the 20 areas covered, 15 showed declining home prices compared with January, while three showed an increase and two were unchanged. The biggest month-over-month drop was a 1.2 percent decline in Detroit, while the biggest gain was a 0.5 percent increase in Seattle.

A rise in mortgage defaults and rising foreclosures among subprime borrowers, or those with poor or limited credit histories, will cause U.S. home prices to fall this year for the first time on record, the National Association of Realtors said earlier this month.

The 2007 median price for an existing home probably will decline 0.7 percent to $220,300, the first drop since the real estate trade group began keeping records in 1968 and probably the first decline since the Great Depression.

The median price for new homes in the Chicago area is projected to increase 0.4 percent to $246,200 this year, the smallest gain since prices fell in 1991.

Housing markets including California, Florida and Arizona are becoming tougher for sellers,

The Realtors Association later this morning will release figures on March existing home sales. Resales fell to an annual rate of 6.40 million from 6.69 million in February, according to the median estimates.

The gauges from the Commerce Department and the Realtors group can be influenced by changes in the types of homes sold. Higher sales of cheaper homes relative to more-expensive properties will bias the figures down.

Ohio began a program this month that allows borrowers to refinance into low-cost 30-year fixed rate mortgages. The bailout is being funded by state-issued bonds.

The problems spring largely from subprime loans, made to borrowers with irregular income or troubled credit histories. Typically, they have low teaser interest rates that ratchet up over time. Be sure to use much caution when considering and loan that looks and sounds to good to be true, because it probably is just that.
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