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Home Prices Take Record Dip, Consumers Stay Confident

Contradictory findings point to unpredictable market

By Mark Huffman
ConsumerAffairs.com

July 29, 2008

In two separate and seemingly conflicting reports today, economists point to a surprising stabilization in consumer sentiment and a continued erosion of home values.

In its monthly report, Standard & Poor's/Case Shiller said the median price of a home fell 15.8 percent in 20 of the largest metropolitan areas in May, on the heels of an almost equally steep drop the month before. The National Association of Realtors also reported existing home sales for June had declined 2.6 percent in May, and 15.5 percent from June 2007.

In May, home prices were down across the board in all 20 metro areas surveyed. The falling prices match an increase in foreclosure activity, which adds to the glut of housing already on the market. As a result, home prices go down.

While that ordinarily would be celebrated as good news by people hoping to buy a home for the first time, it spells deep trouble for the economy as a whole. Declining values mean declining equity. People who purchased their home recently might now be "underwater," a term for owing more than the house is worth.

During the real estate boom of the last ten years, consumers often tapped the equity in their homes with bank loans, used to pay for home improvements, education, and other things that fueled the consumer economy.

Even so, consumer confidence held its own this month. The Conference Board said its monthly measure of consumer sentiment rose less than a point in July, the first increase since December. However, it remains very close to June's 16 year low.

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